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Advantages v Disadvantages Of Liquidation

Last updated: May 22, 2025

The quick answer

Liquidation brings a limited company to a close and if the directors have not personally guaranteed any debts like bank loans there is usually very little comeback. The main disadvantage to liquidation is that you will lose the company, and the assets will go to pay the creditors.

 

In more detail

Advantages of Liquidating a Limited Company

  • It stops the company trading and brings it to a formal close.
  • We deal with your creditors direct and help any employees claim from the Government’s Redundancy Payments Service.
  • There is no longer a need to file VAT or PAYE returns nor complete and file accounts. 
  • It does not normally affect your credit rating as a director.
  • Unless you have guaranteed debts like bank loans then you have no personal liability.
  • Liquidation can be done in 14 days and all online.
  • You can, in some circumstances, buy the assets back and start again.

disadvantages to Liquidation

  • You will lose control of the company as it will close.
  • The assets are sold to pay the creditors first before shareholders.
  • If you owe money to the company like on a director’s loan you will have to pay it back.
  • If this is your third liquidation within five years you may be liable for the company tax debts (if the tax debts are more than half of all debts).

Why Do Businesses go into Liquidation?

  • There are not enough assets to pay all the liabilities.
  • If the business cannot pay the debts as they fall due.
  • The business is loss making and cannot be turned around.
  • The directors are finding it hard to cope with the stress and pressure of trading.
  • The directors are worried they will be liable for wrongful trading if you carry on.

Employees owed redundancy, unpaid salary, holiday pay and notice pay can claim this from the Government Redundancy Payments Service. Directors can usually claim this as well.

a word of advice

If you need help, please make contact and ask any question you like. Directors always have lots of questions they want answers to.

tip

If you are loss making don’t keep losing money. You may become liable for the company debts including suppliers, VAT, PAYE and loans.

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Author: David Kirk - ACA FABRP
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