What is company liquidation and how does it work?

Company liquidation is the formal process of closing down a business and distributing its assets to creditors. It is often the last stage in insolvency when the company can no longer trade or repay its debts. There are several types of liquidation in the UK. Creditors’ Voluntary Liquidation (CVL) is initiated by directors when they acknowledge that the company is insolvent and cannot continue. Compulsory liquidation happens when a court orders the company to be wound up, usually following a creditor petition. Members’ Voluntary Liquidation (MVL) applies to solvent companies where directors choose to close the business and distribute surplus assets to shareholders. In all cases, a licensed insolvency practitioner or the Official Receiver is appointed as liquidator. The liquidator’s role is to sell company assets, settle claims in order of priority, and investigate directors’ conduct if the company is insolvent. Once the process is complete, the company is struck off the register at Companies House and ceases to exist.