Closing a company that cannot pay its debts

What liquidation is, and what it is not

A creditors’ voluntary liquidation is a liquidation you start. The shareholders resolve to wind the company up, the creditors are told, a licensed insolvency practitioner is appointed as liquidator, and the company’s assets are sold to pay creditors as far as they go. The company then ceases to exist.

It is not a rescue. If you want the business to carry on trading, you are looking at administration, a company voluntary arrangement or a restructuring plan. It is also not the same as compulsory liquidation, where a creditor petitions the court and the Official Receiver takes over. In a CVL you choose the timing and the practitioner.

When it is the right route

A CVL fits when three things are true: the company cannot pay its debts as they fall due, there is no realistic prospect of that changing, and there is no buyer for the business as a going concern. If the company has a few thousand pounds of debt and no assets, a CVL may cost more than it saves, and a practitioner will tell you so.

What it costs and how long it takes

For a small company with few assets and a straightforward creditor list, expect £4,000 to £8,000 plus VAT and disbursements. The figure rises with the number of creditors and employees and with anything contentious. From the first call to the liquidator’s appointment is usually two to four weeks. The liquidation itself runs for six months to two years, but your active involvement is concentrated in the first month.

What it means for you

• Your directorship ends on appointment. You can direct other companies.
• Personal guarantees survive. A lender with a guarantee from you will pursue you directly.
• An overdrawn directors’ loan will be pursued by the liquidator. Settle it as part of the process, not after.
• Bounce Back Loans are company debts. You are not liable unless the money was misused.
• Your personal credit file is not affected. The liquidation is public at Companies House and in the Gazette.

What to do this week

1. Write down what the company owns, owes, who it employs and what you have personally guaranteed.
2. Stop paying anyone selectively until you have had the first conversation.
3. Gather the last two years of accounts, six months of bank statements and the aged creditors list.
4. Get a written quote from a licensed practitioner.