What does it mean when a company is in liquidation?

What it means

A liquidator has taken control of the company. Their job is to collect and sell its assets, pay its creditors as far as the money allows and then close the company. The directors' powers end. There are three kinds:

• Compulsory liquidation: the court makes a winding-up order, usually on a creditor's petition. The Official Receiver acts first and may hand over to an insolvency practitioner.
• Creditors' voluntary liquidation (CVL): the directors and shareholders choose to close an insolvent company.
• Members' voluntary liquidation (MVL): a solvent company is closed, often on retirement or after a sale, and its debts are paid in full.

The register status does not say which procedure applies or who the office-holder is. The company's filing history at Companies House and its notices in The Gazette do: look for the appointment notice, which names the insolvency practitioner and gives their contact details.

What happens next

The business usually stops trading, although a liquidator may trade for a short time to sell it. The liquidator collects the assets, looks into the directors' conduct and reports on it to the Insolvency Service, then pays creditors in an order set by law:

1. lenders with a fixed charge, from the assets it covers;
2. the costs of the liquidation;
3. preferential creditors, such as employees' unpaid wages and holiday pay up to set limits, then some taxes owed to HMRC (VAT and tax deducted from pay, since December 2020);
4. lenders with a floating charge, after a share of the floating-charge assets is set aside for unsecured creditors (the "prescribed part");
5. unsecured creditors, such as suppliers and customers, who share what is left equally;
6. shareholders, if anything remains.

If the company owes you money

• Send your claim (a "proof of debt") to the liquidator with evidence such as invoices. The liquidator's details are in the Gazette notice and the filing history.
• In an insolvent liquidation, unsecured creditors often get a small part of what they are owed, or nothing. In an MVL debts should be paid in full.
• If you supplied goods on terms that keep ownership until you are paid ("retention of title"), tell the liquidator straight away and identify the goods.
• If you paid by card, ask your card provider whether you can claim the money back.
• Employees can claim redundancy pay, notice pay and some unpaid wages from the government's Redundancy Payments Service.

How long it takes

There is no fixed time limit. A straightforward creditors' voluntary liquidation often finishes within one to two years; cases involving property, legal claims or investigations take longer. When the liquidator has finished and filed a final account, the company is normally dissolved about three months later.