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If a company or limited liability partnership faces financial difficulties it doesn't have to result in liquidation. 

Alternatives to liquidation include:

• administrative receivership
• members' voluntary liquidation
• company voluntary arrangement
• administration

Administrative receivership

An administrative receiver can be appointed by a creditor. The receiver must be an insolvency practitioner (IP). Before a receiver can be appointed, a document, called a debenture, which gives the creditor charge over company assets must be granted by the company. Once granted the company is in administrative receivership. The receiver's job is to recover money for the creditor.

There are several options including:

• continuing in business under supervision
• selling all or part of the company
• ceasing trading and selling assets

Company Voluntary Arrangement (CVA)

A CVA is when a company proposes an arrangement with its creditors. If creditors holding more than 75% of the debts accept the proposal, all creditors are bound by it. The CVA must be managed by an IP who will report on progress annually. If a CVA is accepted, creditors cannot take action against the company. A CVA ends when it has either been completed or failed.

CVA moratorium

There may be a moratorium into CVA procedures. This means that, subject to certain specific exceptions, creditors cannot act against the company. It will normally last for 28 days and the court will decide if a company is eligible.

Administration

This is when an administrator, who must be an IP, is appointed to manage a company's affairs. Their objective is to rescue the company as a going concern. An administrator may be appointed by:

• an administration order from the High Court
• the holder of a floating charge
• the company or its directors/members

Administration protects the company from its creditors. A creditor cannot petition for the winding up of a company while it is in administration.

Members' voluntary liquidation (MVL) is when a company or limited liability partnership (LLP) is solvent and has sufficient assets to pay their creditors.

Formal declaration of solvency

The directors of a company must make a formal declaration of solvency and file it with Companies House. The declaration must:

• be made by the majority of directors on a date no more than five weeks before the passing of the resolution for voluntary winding up
• be filed at Companies Registry
• state that the directors have made a full inquiry into the company's affairs and are of the opinion that the company can pay its debts and interest within a maximum of 12 months
• include an up-to-date statement of the company's assets and liabilities

It is a criminal offence to make a declaration of solvency without reasonable grounds.

Resolutions for winding up

A general meeting must be held by the shareholders of a company. At this meeting, resolutions for winding up the company are passed, along with the appointment of a liquidator. A special resolution must be passed by shareholders for a winding-up.

The shareholders must pass a special resolution for winding up, unless:

• the company resolves that it cannot continue its business because of its liabilities, when an extraordinary resolution is required
• the articles of association of the company provide for it to be dissolved at a certain time, or following a certain event, when an ordinary resolution is required

If it later turns out that the company is not solvent, the liquidator will call a meeting of creditors and the liquidation becomes a creditors' voluntary liquidation.

Creditors' voluntary liquidation (CVL) is when a company or limited liability partnership (LLP) cannot continue its business because of its liabilities.

Resolutions for winding up

A company can hold a meeting to vote by special resolution for it to be wound up voluntarily.

Once the resolution by the company for a winding-up has been passed, the company must:

• send a copy to the Registrar of Companies
• hold a meeting of its creditors - although it is common practice for the meetings of members and creditors to be held on the same day

This gives creditors the opportunity to:

• question the directors of the company as to the reasons for the failure
• put forward an alternative liquidator

Creditors' meeting

One of the directors or designated members must be at the creditors' meeting and preside over it. If they do not attend, the creditors can appoint someone else to preside. If a liquidator has been nominated by the company, they must be at the creditors' meeting and report on any action they have taken in the period between the meetings.

Once appointed, the liquidator takes control of the company and its assets.

Compulsory liquidation is when a company or limited liability partnership (LLP) is unable to pay its debts and is ordered by the High Court to be wound-up. If the High Court receives an application, known as the winding-up petition, from a relevant person, it can make a winding-up order.

Submitting a winding-up petition

Usually, a petition for the winding-up of a company or LLP is presented by one or more creditors but it can be made by:

• a company or LLP itself
• the directors or shareholders of a company or designated members of an LLP
• the supervisor of a voluntary arrangement
• the administrative receiver or administrator
• the Department for the Economy (DfE)
• the Financial Services Authority
• a clerk of the High Court
• the official receiver (OR)
• a Member State Liquidator
• the Attorney General (in the case of a charitable company)
• the Regulator of Community interest companies
• the Director of Public Prosecutions

A winding-up petition can still be presented even if a company or LLP is already in administrative receivership or voluntary liquidation.

Circumstances behind a winding-up order

A winding-up order can be made if:

• the company or LLP has decided that it should be wound up by the court
• the company or LLP has not yet been issued with a trading certificate, despite being registered as a public limited company or LLP more than a year previously
• it is an old public company
• the company or LLP has not begun trading within a year of its incorporation or has suspended its trading for a whole year
• the number of members is less than two, unless it is a private company limited by shares or guarantee
• the company or LLP cannot pay its debts
• the company or LLP has reached the end of a moratorium without approval of a voluntary arrangement
• the High Court decides that this would be just and equitable

Compulsory liquidation and liquidators

The OR will become the liquidator when a winding-up order is made against a company or an LLP - unless the court decides against this. A copy of the winding-up order must be sent to the Registrar of Companies and placed on the company's public record.

As the liquidator the OR must:

• investigate the company's or LLP's affairs and the causes of the failure
• decide whether to call a meeting of creditors, contributories and members to find a replacement liquidator in their place
• notify creditors, contributories and courts if they decide not to call a meeting

If the company or LLP has a number of assets the OR may seek to appoint an insolvency practitioner (IP) as liquidator. If an IP is appointed, the IP must notify the Registrar of Companies of their appointment as soon as reasonably practicable.

Bankruptcy can be an option for you if you have personal debts that you cannot pay by their due date.

Completion of the bankruptcy petition

To petition for your own bankruptcy you must complete the bankruptcy petition () along with a statement of affairs ().

Your next step will be to pay a £525 deposit towards the cost of administering your bankruptcy to the Department for the Economy (DfE). This deposit must be paid in all cases and payment may be made in cash or postal orders, or by a cheque from a building society, bank or solicitor. Cheques should be made payable to the 'Official Receiver'.

Alternatively you can .

You will then need to take the completed forms to the Bankruptcy and Companies Office at the High Court, along with:

• 4 copies of your petition (5 if you are a solicitor)
• 1 copy of your statement of affairs
• the receipt for the deposit paid to DfE

The Court will either hear your petition straight away or arrange a time for the Court to consider it.

For further information see make yourself bankrupt. You can also .

If you are a director of a company that becomes insolvent and there is evidence of unfit conduct by you, the Insolvency Service can apply to the court to make an order disqualifying you from acting as a director for between two and 15 years.

Disqualification order

A disqualification order can be made against a director for such unfit conduct as:

• continuing to trade at the expense of creditors when the company was insolvent
• failing to keep proper accounting records
• failing to submit tax returns or pay tax due
• not preparing and filing accounts or not sending returns to Companies House
• failure to co-operate with the official receiver/insolvency practitioner

The effects of disqualification

A disqualification order or undertaking will prevent you from:

• acting as a company director
• being involved with the formation, management or running of a new company
• acting as a receiver of a company's property

Disqualification proceedings

The Insolvency Service has three years to apply for disqualification starting from the official end of the company which can be from the date of the:

• winding-up order (compulsory liquidation)
• voluntary liquidation
• administrative receivership
• administration

This period may be extended at the discretion of the court.

See the Department for the Economy (DfE) guidance on .

Disqualification undertakings

If you are a director who is the subject of intended disqualification proceedings, you can offer a disqualification undertaking to the department, undertaking not to be a director for an agreed period. A disqualification undertaking has the same effect in law as a disqualification order, but does not involve the courts.

Scope of disqualification

The ban on being a director applies to all registered and unregistered companies formed in Northern Ireland and Great Britain. The ban also applies to foreign companies that are registered in the UK and to:

• building societies
• incorporated friendly societies
• NHS Foundation Trusts

You will also be barred from holding other offices.

Criminal proceedings for breaches of a disqualification order

It is a criminal offence to breach a director disqualification order or undertaking, without permission from the court. The penalties range from a fine to up to two years in prison.

If you breach your disqualification order or undertaking, you will be personally liable for the company's debts incurred during the breach. The same applies to anyone involved in the management of the company who carries out your instructions knowing that you are disqualified. 

If you are a former director of a liquidated company, there are legal restrictions that apply regarding the reuse of that company's name or its trading name. This is intended to prevent abuse of the so-called 'phoenix company' - where a failed business re-emerges to operate under a similar name.

Prohibited names

A prohibited name is a name by which a liquidated company was known at any time in the 12 months immediately before its liquidation. This can be any of the following:

• the name registered at Companies House
• the company's trading name
• any name so similar to either of the above that it suggests an association with the liquidated company

The restrictions apply personally to you if you were registered as a director - or acted as a director - during the 12 months leading up to the liquidation.

What are the restrictions?

You - and any other former directors - are banned from being a director of a limited company that's using a prohibited name for five years from the date of the original company's liquidation. The ban includes not being allowed to take part in the formation, promotion or management of such a company.

The restrictions also extend to a business that is not a limited company - eg a partnership or sole trader - that's using a prohibited name. In such a case, any relevant former directors are banned from being concerned in or taking any part in carrying on such a business for five years.

Penalties for breaching rules on use of prohibited names

It is a criminal offence to break the rules regarding the use of a prohibited name. Successful prosecution could lead to a fine, a prison sentence or both.

You could also be made personally liable for company debts incurred during the period you were involved in managing a business using a prohibited name - even if it was a limited company.

If you are involved in managing a business and act on instructions from someone you know to be acting as a director when restricted from doing so you would be committing a criminal offence.

Exceptions to the rules - when you can reuse a prohibited name

There are certain exceptions where you can legally reuse a prohibited name. It will generally depend on the particular circumstances of an insolvency.

However, the penalties for breaking the rules are severe and it is highly recommended that you get professional advice on your options.