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What is the Insolvent Liquidation Process?

What happens when an insolvent company goes into liquidation? What does it mean for the directors and employees? Are there any risks involved? These are some of the common concerns of the business owners and managers facing the possibility of compulsory liquidation.

The concerns

  • A Creditor Issues a Statutory Payment Demand
  • A Winding Up Petition is Issued
  • A Liquidation Order Granted
  • The Company is Liquidated
  • Post-Liquidation Investigation

When a business goes into liquidation, its assets are sold to satisfy creditors, and the company closes. On Companies House, the firm name remains active, but the status has changed to ‘liquidation.’ The name is only removed after dissolution, which takes roughly three months after the liquidation is completed.

In this simple step-by-step guide to the insolvent liquidation process, we’ll answer those questions and more |

Step 1 | A Creditor Issues a Statutory Payment Demand

If a creditor is unable to collect a debt of more than £750, they may issue a statutory payment demand notice, giving your company 21 days to repay the obligation. As a result of the government’s interim measures, this figure has been raised to £10,000 for the period 1 October 2021 to 31 March 2022. Occasionally, a creditor will skip this step and instead send a winding-up petition through their solicitors.

Step 2 | A Winding Up Petition is Issued

If you do not comply with the payment request, or if the creditor believes they have the legal right to wind up your bankrupt firm, they may file a winding-up petition with the court, requesting for the company to be closed down and its assets to be liquidated to settle the debt.

The creditor must pay a £1,190 court deposit plus a fee of £300-£800 merely to file the winding-up petition, so it’s clear that they’re serious about collecting the debt and shutting down your business once this step is completed. The petition for winding up is served at the company’s official business address and published in the London Gazette, after which the bank may freeze the company’s bank account.

You may be able to reach an agreement through a company voluntary arrangement (CVA), which could revise payment terms and provide a possibility for complete recovery if you respond swiftly before the petition is posted. We might be able to put together a proper CVA plan and persuade the creditor to drop out of the winding-up procedure.

Step 3 | A winding-up order is granted

The court will rule whether or not the corporation should be wound up roughly a month after the winding-up petition is filed. If your firm fails to pay a statutory payment demand or a County Court Judgement (CCJ), the court will almost certainly order your company to be wound up.

Step 4 | The Company is Liquidated

The fundamental goal of a liquidation is to liquidate as many of the company’s assets as possible so that the revenues can be used to repay creditors and contributors. Assets may be sold on the open market or at auction, with the liquidator’s primary goal being to obtain the greatest feasible price.

Step 5 | Post-Liquidation Investigation

The liquidator will examine the liquidation to determine if the directors engaged in improper or fraudulent trading while the firm was bankrupt.

There are two insolvent liquidation processes |

  1. Creditors’ Voluntary Liquidation (CVL)
  2. Compulsory liquidation

Creditors’ Voluntary Liquidation (CVL)

When creditors threaten legal action against a company and there is no realistic possibility of rescue or recovery, a Creditors’ Voluntary Liquidation is generally in everyone’s best interests.

Because all company assets will be liquidated as part of the process, creditors will have the best chance of receiving a return. The appointed liquidator is responsible for collecting and realising all corporate assets on behalf of creditors as a whole, rather than the company directors.

A brief timeline of a CVL

  • Shareholders vote on whether to pass a ‘winding-up resolution’ and place the company into voluntary liquidation
  • The winding-up resolution is sent to Companies House within 15 days of the shareholder vote
  • A notice must also be placed in the Gazette within 14 days
  • Assets are realised, and funds distributed among creditor groups, according to the statutory hierarchy of repayment
  • The conduct of directors leading up to the insolvency is investigated for instances of wrongful or illegal trading.

Compulsory liquidation

While a firm’s directors might drive a corporation into voluntary liquidation, a creditor can force a company into compulsory liquidation. If a creditor owes the debtor firm £750 or more, they may be able to petition the court to have it wound up. As a result of the government’s interim measures, this figure has been raised to £10,000 for the period 1 October 2021 to 31 March 2022.

If the courts issue a winding-up order, a liquidator is appointed, and the company’s assets are liquidated to pay off outstanding creditors.

Solvent liquidation – MVL

An MVL procedure also necessitates the involvement of a licenced insolvency practitioner and results in a company’s closure after the distribution of its assets to creditors and shareholders.

Creditors are paid in full because it is a solvent liquidation procedure, and the majority of directors must sign a Declaration of Solvency attesting to this.

  • No more than five weeks later, shareholders pass the resolution needed to wind up the company, and appoint a licensed IP to administer the process
  • A notice is placed in the Gazette within 14 days of the resolution being passed, and the signed Declaration of Solvency needs to be sent to Companies House within 15 days

What does a liquidator do?

As previously stated, the appointed liquidator will liquidate the company’s assets and distribute the proceeds to creditors. Although these are the most important roles, a liquidator will also perform other duties, such as |

  • Dealing with any outstanding contracts
  • Dispensing information to creditors throughout the process
  • Removing the company from the register at Companies House
  • Interviewing directors as part of their investigations

If you require more information on corporate liquidation, our experts at Shergroup can help. We offer an initial appointment free of charge to quickly establish your needs.


If you’re facing the possibility of a compulsory liquidation or have been receiving pressure from creditors and bill collectors, feel free to get in touch with Shergroup. We’ll help you assess the situation and devise an optimal plan of action. Our extensive office network comprises High Court Enforcement Offices who enforce orders across the UK with a partner-led service from our legal company Sherwins Ltd offering immediate director advice and support.

Call our business solutions advisors for information and see how we can help you with your liquidation process.

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Last updated | 19 July 2023

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