Liquidation

GOV.UK guidance identifies three routes into liquidation: "creditors' voluntary liquidation - your company cannot pay its debts and you involve your creditors when you liquidate it", "compulsory liquidation - your company cannot pay its debts and you apply to the courts to liquidate it", and "members' voluntary liquidation - your company can pay its debts but you want to close it". Compulsory liquidation is triggered by a winding-up petition, most commonly presented by a creditor, and under section 122 of the Insolvency Act 1986 a company can be wound up by the court on several grounds, chiefly "the company is unable to pay its debts" or where "the court is of the opinion that it is just and equitable that the company should be wound up". Inability to pay debts is itself defined by section 123: it includes the classic case of a creditor owed more than £750 serving a written statutory demand that goes unpaid for three weeks, as well as the broader "cash-flow" and "balance-sheet" tests — being unable to pay debts as they fall due, or having liabilities (including contingent and prospective ones) that exceed the value of assets.

Voluntary liquidation, by contrast, is member- or creditor-driven rather than court-driven. Section 84 of the Insolvency Act 1986 allows a company to be wound up voluntarily where the members pass a resolution — either an ordinary resolution under provisions in the articles for a fixed duration or triggering event, or, in practice most commonly, "a special resolution" that the company be wound up voluntarily. Whichever route is used, once liquidation begins the liquidator takes control of the company's affairs: GOV.UK's guidance confirms that "the company will stop doing business and employing people" and that its assets are realised and applied first to pay off its debts, with anything left over going to the shareholders; the company only ceases to exist once it is formally removed ("struck off") from the register at Companies House. Throughout the process the outgoing directors' powers cease, but GOV.UK's director-facing guidance stresses that although "your director duties cease, you must fully co-operate with the liquidator".