Neville Co > Free Guides > Liquidation > Advantages and Disadvantages of Liquidation

Advantages and Disadvantages of Liquidation

Liquidation is a very useful way of wrapping up a limited company that is no longer able to trade due its debts. It should not be used where the company is solvent, nor when the business in the limited company can be restructured or saved (administration or a CVA is usually a better option here).


Reasons for liquidation include:

  • You cannot pay your debts as they fall due.
  • Your liabilities exceed your assets.
  • You are making losses and you don’t think you can turn the situation around.
  • You are finding it hard to cope with the stress and pressure of trading.
  • You are worried that trading is in decline and you will be liable for wrongful trading if you carry on.
  • Someone else will deal with the creditors and all their claims.
  • Employees owed redundancy, unpaid salary or holiday pay and notice pay can claim this from the government RPO fund. Directors can usually claim as well.

Reasons against liquidation include:

  • The business can pay off all its debts within a short period of time.
  • The business may be insolvent, but has a value to someone else so should be sold first.
  • If you are a director or shadow director with a poor compliance history or you have been disqualified as a director you should very carefully consider your options. You may be committing a criminal offence.
  • A Company Voluntary Arrangement or pre-pack administration may be better options.
  • You can raise the money to pay off all the debts and do not want the stigma of having been the director of a liquidated company.


Insolvency is a legal mind field. If you are in doubt seek good legal advice from a qualified and experienced solicitor who specialises in insolvency or a licensed insolvency practitioner like our firm. Avoid unlicensed debt advisors whose incentive may not necessarily be to help you.