What does liquidation mean ?

Liquidation is the process of closing a limited company, selling assets and dissolving the company from the official CIPC register. 

It is the process that your company faces if you have cash flow problems on a regular basis and creditors are threatening to take enforcement action. A compulsory liquidation is a form of liquidating a company which involves an application through the courts. It can happen when a winding-up petition has been issued by a creditor of an insolvent company, due to a debt not being satisfied.

Why might a company go into liquidation?

A company may go into liquidation when:

  • There is a market decline, where the specific sector is no longer as profitable as when the company was founded;
  • Large, repeat customers having themselves gone through an insolvency process;
  • Core customers that accounted for large sections of revenue having gone to competitors;
  • Unexpected bills that have caused strain on the cash flow of the company;
  • A struggle to collect money from debtors to your company who are not paying their bills on time.

How does liquidation work?

The best way to take steps towards the liquidation of a company is to enlist help from an expert Insolvency Practitioner who can explore your full range of financial options and recommend the best fit for you. 

When your company enters into liquidation, there are a few main steps that are taken. These steps include Creditors Meetings at the high court.

If the business cannot continue trading, and liquidation is decided as the best option, a creditors’ meeting must be held approximately one month after the company ceases to trade.

At this meeting, the Insolvency Practitioner’s appointment will be confirmed. If you have been invited to attend a creditors’ meeting as a debtor, it would be recommended that you attend. This is when a statement of affairs is presented that details the current financial position of the company and informs all creditors about the liquidation process.

What are the specific duties of Directors during Liquidation?

During voluntary liquidation, company directors have to:

Provide all information about the company to the liquidator. 

Attend any interview requests with the liquidator.

Hand over all company assets. 

Allow the liquidator to have access to company books, records, employee records, bank statements, insurance policies and all relevant documents relating to the company’s assets and liabilities.

Once the liquidator has circulated the final report to shareholders and/or creditors, there is an 8-week period for creditors/members to object to the liquidator’s release.

Types of Liquidations 


Creditors’ Voluntary Liquidation (CVL)

A CVL takes place when a company is insolvent and no longer has the ability to pay its liabilities or continue trading.

It is the director’s duty to instruct an insolvency practitioner in this case. Directors then commence a decision-making process to place the company into liquidation and hand over control to a liquidator upon appointment by the high court.


Members Voluntary Liquidation (MVL)

This liquidation process is applicable when a company may still be solvent and able to trade, yet the directors of the company wish to close the company down.

In this instance, there is enough value left in the remaining assets of the company in order to pay debts owed to creditors, plus statutory costs. An MVL could also be used in circumstances due to the retirement of a director or shareholder, or when a family business has no one to succeed it.

In order to begin the liquidation process, the directors of the company must make a formal declaration of solvency. It will:

  • Include all relevant and up-to-date company assets and liabilities within a single statement;
  • State that all directors of the company have conducted a full and thorough inquiry into the affairs of the company;
  • State that directors are happy that the company can repay all debts and interest within a 12-month period.

Compulsory Liquidation

This form of liquidating a company involves the courts and happens when a winding-up petition has been issued by a creditor of an insolvent company, primarily when a due debt has not been satisfied.

The petition is subsequently heard at a winding-up hearing and a judge can make a Winding-Up Order to place the company into Compulsory Liquidation. The company is then liquefied by an appointed liquidator.

Advantages and disadvantages of liquidations


By choosing to liquidate your company, you can benefit as a director. It prevents the creditors of the company from incurring more debt and ensures you, as a director, are less likely to be guilty of wrongful trading action being brought against you. 
Some of the main advantages of Liquidation are:
  • Removes pressure from all creditors.
  • Prevents further legal action being taken against you.
  • Allows time for the realisation of company assets, ensuring that creditors receive the best possible return in terms of repayment of debt owed.
  • Potentially allows the opportunity for directors and/or shareholders to purchase assets at fair value, if they can be used in another business going forward.
  • Offers a complete, clean break for directors to move on from the company.
  • Employees can submit redundancy pay claims through government schemes.
  • As liquidator’s costs are paid once company assets are realised (providing
    assets are of sufficient value), there are no other fees directors are liable for.


  • Can no longer trade under the same or similar company name after liquidation.
  • Once liquidation starts, any trading that is continued with the business may cause you to be prosecuted.
  • Business assets, reputation and licenses will be instantly removed from company ownership.
  • Can’t recover any tax loss you may have incurred in your trading years.

Liquidating a Company and Starting Again

If you are considering liquidating a company and starting again, there are several issues and complexities that you should consider. The Insolvency Experts can help you to understand exactly what you should expect when your company has gone into liquidation.

It is not uncommon for a company to go into liquidation and close, but for a new legal entity to then be created where the assets of the liquidated company continue. In these cases, the assets may be acquired from the Liquidator at fair value. It is always worth considering all of your available options when looking at liquidating your company and starting again.