When is it time to throw in the towel?

June 1, 2023

In an ideal world, perhaps businesses would never need to deal with an Insolvency Practitioner (IP). One common misconception is that IPs simply help to close businesses that go bust or run out of money. This is by no means always the case, since options exist for company directors to wind up solvent businesses in an orderly manner.

There are several possible triggers for going down this route: a deterioration in cash flow; pressure from creditors; a tax liability on the horizon. It may even be that founders or owners collectively decide that they no longer want to be in business.

More often than not, the motivation is to stay on the front foot while the direction of travel doesn’t look good. A Creditors’ Voluntary Liquidation (CVL) is director-initiated after passing a resolution at a board meeting. A IP is appointed to act as liquidator, taking control of the company’s assets and liabilities to commence the process of paying off creditors. A CVL is effectively the last chance for directors to exercise any control after all other options for saving a business have been exhausted.

Unsurprisingly, a CVL incurs professional fees which, given that a business is insolvent, may appear counter-intuitive to a board seeking to minimise costs in general. It’s possible to mitigate this outlay, however, as directors may be eligible to claim director redundancy pay, possibly using it towards the costs of the process.


  • Any lease/hire purchase agreements are terminated on entering a CVL, so a business is no longer liable for subsequent payments
  • Creditors cannot initiate court proceedings against the company
  • Employees can claim redundancy pay, which is dealt with by the IP

By contrast, a Members’ Voluntary Liquidation (MVL) – closing a solvent business – sees the net proceeds of asset sales distributed to a company’s shareholders. It may be used when a company is unlikely to be viable in the longer term, allowing an orderly dissolution with a certain amount of flexibility in disposals.

It’s important to note that directors cannot  ‘liquidate’ their own companies and that voluntarily striking off a business with debt is clearly against the law.

The prospect of waiting for enforced liquidation is extremely unappealing. Compulsory liquidation is usually initiated by creditors via a winding-up petition in the High Court. Since it risks increasing the financial losses of creditors as a whole, waiting for court action following a creditor’s strenuous attempts to recover money owed usually contravenes insolvency laws in the UK and is a breach of fiduciary obligations as a company director.

How do I know when it’s time to liquidate my company?

If you are considering entering any liquidation process, or have any questions regarding how they work, contact us at Buchler Phillips on info@buchlerphillips.com

Written by Anoushka Desai, Analyst at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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