What is a company liquidation?

Understanding company liquidation

When people say a business is shutting down or going under, they’re usually talking about company liquidation. In simple terms, it’s the official way of closing a business: everything the company owns is sold, the money goes to pay off debts, and whatever is left (if anything) is given back to shareholders. Once the process is done, the company no longer exists.

Most of the time, liquidation happens because the company can’t pay its bills. Still, even a profitable company may decide to liquidate—say the owners want to retire or move on to something new. No matter the reason, once the process starts, daily business stops. From that point on, it’s all about turning assets into cash and paying off what’s owed. So, what does “in liquidation” mean for a company? It means the business is no longer operating as usual but is instead in the middle of shutting down and clearing debts.

Types of company liquidation

Liquidation generally falls into two categories: voluntary or involuntary.

• Voluntary liquidation happens when the owners or directors decide to close the company themselves. This can be because the company is insolvent or simply because they want to close while still solvent.

• Involuntary liquidation happens when creditors or a court step in because debts haven’t been paid.

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In either case, the outcome is the same — assets get sold, creditors are repaid as much as possible, and the company is dissolved. The only difference lies in who pulls the trigger — the business itself or outside forces.

How to liquidate a company

If you’re wondering how to liquidate a company, it involves several key steps. In general, the process works like this:

1. Decision & Approval

Formally decide to liquidate (e.g., the board and shareholders pass a resolution to wind up the company).

2. Appoint a liquidator

Appoint a liquidator or insolvency professional to oversee the process (in a small company, an owner might take this role).

3. Notify stakeholders 

Inform all creditors, employees, and other stakeholders that the company is entering liquidation.

4. Sell off assets

Identify and sell everything the company owns to turn assets into cash.

5. Pay debts

Use the cash to pay off the company’s debts in the legal order of priority (secured creditors usually first, unsecured ones later). If there isn't enough to pay everyone, some debts will be paid only partially.

6. Distribute remaining funds

If any money remains after all debts, distribute it to the shareholders.

7. Legal dissolution

   
   

File the required documents to officially dissolve the company and close it down legally.

Company liquidation procedure

The steps look similar whether the company is solvent or insolvent. Solvent liquidations usually happen outside of court, while insolvent cases may involve a court process. In both cases, the goal is to legally wind up the company by selling assets, paying off debts, and formally closing the business.

What happens to a director of a company during liquidation

During liquidation, company directors essentially lose their managerial powers. In other words, directors during liquidation no longer have control over the company. Once a liquidator or bankruptcy trustee is in place, that person takes over control of the company’s assets and operations. Directors can no longer make decisions for the company without the liquidator’s consent. However, directors do have important duties at this time: they must cooperate with the liquidator by providing all requested information, company records, and access to assets. If directors did something improper before liquidation (like hiding assets or running up debts knowing the company was insolvent), the liquidator may investigate, and they could be held personally liable. Generally, if directors have fulfilled their duties correctly, the process of company liquidation simply marks the end of their role, and they are usually not held personally responsible for the company’s debts.

Implications for shareholders and creditors

For shareholders, liquidation often means walking away empty-handed—especially if the company was insolvent. They’re last in line for repayment and only get something if creditors are fully covered first. On the upside, limited liability means shareholders don’t have to dip into their personal funds to cover company debts.

For creditors, liquidation is about getting whatever repayment is possible. Secured creditors (like banks with collateral) are first in line. Unsecured creditors come next, though they may receive only a fraction of what they’re owed. Once the company is dissolved, unpaid debts essentially vanish with it.

FAQ – Company liquidation explained

What is a liquidated company?

In short, it’s a business that no longer exists, and the phrase “liquidate a company” usually has a meaning that refers to this exact process of selling assets, paying creditors, and ultimately dissolving the company.

How to liquidate a limited company?

To liquidate a limited company, you generally need to take a few key steps: officially decide to liquidate (often by a shareholders’ vote), appoint a liquidator to handle the process, notify all creditors of the closure, liquidate (sell) all assets to pay off the debts in the proper order, and then file the paperwork to formally dissolve the company. If the company is insolvent and cannot pay all its debts, this process might be done through a bankruptcy proceeding (like Chapter 7 in the U.S.).

What does “in liquidation” mean for a company?

When a company is in liquidation, it means it is currently going through the liquidation process. The company is no longer carrying out normal business activities; instead, a liquidator is in the midst of selling off its assets and settling debts. Essentially, the company is in the final phase of its life — normal operations have ceased, and the focus is solely on wrapping up affairs.

What are the legal obligations during liquidation?

The legal obligations during liquidation are basically to follow the rules and be fair. This means notifying all creditors and treating them according to the legal priority (not secretly paying some and not others), not hiding or improperly transferring assets, and filing all required notices and paperwork. In short, everything must be done aboveboard and by the book so the liquidation is fair and legal.

How Icon.Partners can help you?

If you’re facing company liquidation or want to set up a new business, Icon.Partners can help. Our team guides clients through every step, from winding down a company to handling company incorporation for a new venture. You don’t have to navigate the legal maze alone — contact Icon.Partners to make the process smoother.