What actually happens when a company goes into liquidation?

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No company sets out to go into liquidation, but it happens, and is simply a part of life in the world of business. Unless you have already gone through the process yourself, it is unlikely that you know exactly what going into liquidation means – you may even have avoided the subject.

Here is a quick overview of what it all means.

What does going into liquidation mean, in plain English?

Liquidation is when a company decides or is forced to to cease activities once and for all, usually because it is no longer profitable or its debts have become unmanageable. Put simply, it is when the company decides to stop being a company. 

Although liquidation usually comes as a result of financial collapse (‘insolvency’), that is not always the case.

The three types of liquidation

  • Creditor’s Voluntary Liquidation (CVL) – This is the most common type of liquidation, and is initiated – once the business reaches an “end of life” situation – by the company’s own directors and shareholders, in order to deal with the company’s debts.
  • Compulsory liquidation – This is where the court issues a ‘winding up’ order to the company, following a petition from someone within the company (such as a director). It is often not the best route to go down, however, 
  • Members’ voluntary liquidation – This is where the company is in fact solvent (i.e. it can pay its debts), but wants to cease operations for whatever reason.

In any case, the liquidation process is managed by an authorised insolvency practitioner (IP).

Who is the liquidator?

The liquidator (AKA the insolvency practitioner) is an impartial, authorised individual (or party) whose job it is to guide your business through the liquidation process, whatever that ends up meaning.

Put simply, the liquidator is the person who takes control of your business once the liquidation process starts.

Whose side is the liquidator on?

Contrary to the popular misconception, liquidators are not “the bad guys” – at least, they are not supposed to be. They are there to advise you and assist you.

Any good liquidator, whether acting on behalf of the company directors or the company’s creditors, will work hard to save your business and protect your staff, both financially and more generally. 

What exactly does the liquidator do during the liquidation process?

The liquidator has numerous responsibilities and tasks to carry out, which can vary widely depending on the company in question and on the chosen type of liquidation. However, common steps include the following:

  • Sell off the company’s assets and use the proceeds to pay outstanding debts
  • Make payments to creditors
  • Distribute the company’s assets to its various shareholders
  • Settle disputes between shareholders, between directors, etc.
  • Take care of the administrative paperwork
  • Keep the company’s directors updated on progress
  • Arrange for the company to be removed from the Companies House register

Chamberlain & Co is a firm specialising in business recovery services, with vast experience across corporate and personal turnaround, rescue, refinance and insolvency processes.

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Like Minds is a global thought leadership platform delivering world class events on business development, knowledge and insight aimed at entrepreneurs and business leaders to engage, stimulate and empower them to become global businesses of the future. We also offer a bespoke service for corporate clients and training programmes under the Like Minds U brand. For more information please email bespoke@wearelikeminds.com