What happens when a company goes into liquidation?

Company liquidation is the formal process of closing a business, selling off its assets to pay creditors, and permanently dissolving the company. Once complete, the company ceases to exist and is removed from the register held at Companies House.

For many of the directors we speak to, this is the first time they have ever had to deal with the liquidation of a company and the prospect is understandably overwhelming. We do all we can to make the process is as straight-forward and stress-free as possible. This guide will help you understand exactly what happens when a company goes into liquidation.

“For most directors, the decision to liquidate is the hardest they’ll ever make. By the time they contact us, they’ve usually been struggling with the situation for months. One of the first things we do is take the pressure off. We explain what will actually happen, step by step, so they’re no longer facing the unknown.”
— Julie Palmer, Partner, BTG Begbies Traynor

What happens to directors during liquidation?

Once a liquidator is appointed to liquidate a company, directors lose control over the day-to-day running of the business. You must cooperate fully with the liquidator’s requests for information and access to records. This includes providing details of the company’s financial history, transactions in the period leading up to insolvency, and any personal dealings with the company (such as directors’ loan accounts).

The liquidator will investigate the conduct of directors in the period leading up to insolvency. They are required to report their findings to the Secretary of State for Business. For the vast majority of directors who have acted honestly and sought advice at an appropriate time, the investigation is a straightforward process. Cooperating fully and demonstrating that you took your duties as director seriously goes a long way.

“Directors are often worried about the investigation, but in most cases it’s a routine part of the process. If you’ve acted honestly and haven’t continued trading when you knew the company was insolvent, you generally have nothing to fear. The directors who face the most serious consequences are those who buried their heads and continued running up debts long after it became clear the company was no longer viable.”
- Julie Palmer, BTG Begbies Traynor

How long does liquidation take?

The length of the liquidation process depends on the complexity of the company’s affairs. A straightforward CVL for a small company with few assets and no complications may be completed within three to six months. More complex cases, for example those involving property, disputed debts, ongoing litigation, or large numbers of creditors, can take twelve months or longer.

Most CVLs we handle are completed within three to twelve months from the initial shareholders’ meeting to the final dissolution of the company. The liquidator will keep you informed of progress throughout and your involvement as director is limited to the very early stages of the process. Once you have provided the information the liquidator needs, they will complete the liquidation on your behalf.

What happens to employees when a company goes into liquidation?

When a company enters insolvent liquidation, all employees are made redundant. This is one of the most difficult aspects of the process for directors, and it’s often the issue that weighs most heavily on them when they contact us.

Employees become creditors of the company for any unpaid wages, holiday pay, and other outstanding amounts. Employees with unpaid wages are classified as preferential creditors, meaning they are paid ahead of most other unsecured creditors from the available funds.

If the company’s assets are insufficient to cover what employees are owed, they can claim from the Government’s Redundancy Payments Service (RPS), which covers unpaid wages (up to 8 weeks, capped at £751 per week as of April 2026), holiday pay (up to 6 weeks), notice pay, and statutory redundancy pay. The liquidator will assist employees with these claims as part of the process.

“One of the most common concerns directors raise when they call us is what happens to their staff. Many directors have delayed seeking advice because they’re worried about their employees. We always make supporting employees through the process a priority, ensuring they understand their entitlements and helping them access the Redundancy Payments Service as quickly as possible.”
- Julie Palmer, Partner, BTG Begbies Traynor

What happens to creditors when a company goes into liquidation?

As part of the liquidation process, all company assets are sold with the proceeds then being distributed to creditors according to a strict hierarchy as set out in the Insolvency Act 1986.

In summary, the order of priority is: the costs of the liquidation process itself, then fixed charge holders (secured creditors), then preferential creditors (employees for unpaid wages, and HMRC for certain tax types since December 2020), then floating charge holders, and finally unsecured creditors. In many insolvencies, unsecured creditors receive little or no return. For a full breakdown, see our guide to who gets paid first when a company goes into liquidation.

What happens after liquidation?

Once the liquidation is complete and the company is dissolved at Companies House, you are generally free to become a director of another company, provided the liquidator’s investigation found no wrongdoing and you have not been subject to a director disqualification order. Many of the directors we work with go on to start successful new businesses. 

While you are typically free to start a new company, there are restrictions on re-using the same or a similar company name within 12 months of the liquidation (under Section 216 of the Insolvency Act 1986), unless specific exemptions apply. Your insolvency practitioner can advise you on this and support you through that transition.

For many directors, the biggest barrier to seeking advice is fear of the unknown. Once we explain the process step by step, most tell us the reality was far less intimidating than they expected.

If you’re considering liquidation, or if you’re unsure whether it’s the right option for your company, the most important step is getting clear, honest advice. We guide directors through this process every day, and we’ll explain exactly what to expect so you can make an informed decision.  Call your nearest BTG Begbies Traynor office to arrange a free, confidential consultation.