Liquidation is the formal process of winding up a company, selling its assets, paying what it can to creditors and ultimately closing it down. Once liquidation completes, the company ceases to exist.
Different routes
Liquidation can be voluntary, started by the companys directors and members, or compulsory, ordered by a court. A licensed insolvency practitioner usually oversees the process.
Order of payment
There is a legal order in which creditors are paid from whatever is realised. Not every creditor is guaranteed to recover the full amount owed.
- Liquidation ends a companys existence.
- It can be voluntary or court-ordered.
- Creditors are paid in a set legal order.
If your company is heading towards serious difficulty, seek advice from a licensed insolvency practitioner early, and let Credicorp know so we understand the situation.
When liquidation becomes necessary
Liquidation typically happens when a company can no longer pay its debts as they fall due, or when directors and shareholders decide to close the company voluntarily. In a compulsory liquidation, a creditor or HMRC may petition the court to wind up the company. In a voluntary liquidation, the directors or members themselves initiate the process, often after recognising that the company cannot continue trading or that it is better to close down in an orderly way.
The decision to liquidate is serious and permanent. Once liquidation is underway, control passes to the appointed insolvency practitioner, and the company's assets are gathered and sold. Directors should seek advice from a licensed insolvency practitioner as soon as financial difficulties become apparent, because early action can sometimes preserve more value for creditors and may offer alternative routes, such as a company voluntary arrangement or administration.
Impact on existing credit facilities
When a company enters liquidation, all its debts become immediately due, including any outstanding balance on a Credicorp Flex or Slice facility. The liquidator will assess all creditor claims and distribute available funds according to the legal order of priority. Credicorp is treated as an unsecured creditor unless specific security has been taken, which means repayment depends on the value realised from the company's assets and the competing claims ahead in the order.
If your company is facing serious difficulty, informing Credicorp early is important. We cannot prevent a liquidation, but knowing the situation helps us understand your position and respond appropriately. If liquidation proceeds, the insolvency practitioner will contact all known creditors, and Credicorp will submit a formal claim for the outstanding amount. Any recovery we receive comes through the liquidation process, not through pursuing individual directors personally.
See also: Using Flex to manage supplier and stock costs, What if my company can only pay part of this month's amount? and What is a judgment debt?.