What Are a Director’s Legal Duties During Company Liquidation?

When a company faces liquidation, many directors feel overwhelmed and uncertain about what comes next. But one of the most important aspects of this process is understanding your legal obligations. If you’re a company director navigating liquidation, knowing your responsibilities can help you avoid personal liability and ensure the process is handled correctly. This blog sets out director duties during liquidation and what you must do to stay compliant under UK insolvency law.

Understanding Liquidation: A Quick Overview

Liquidation refers to the formal process of closing a company. It involves selling company assets, paying creditors, and ultimately dissolving the business. There are two main types of liquidation that directors typically deal with:


Creditors’ Voluntary Liquidation (CVL): When the company is insolvent and unable to pay its debts.

Members’ Voluntary Liquidation (MVL): When the company is solvent, but the directors and shareholders have chosen to close it.

Regardless of the type, the law imposes strict expectations on directors from the moment insolvency is identified or liquidation becomes inevitable.


Core Director Duties During Liquidation

Here are the primary responsibilities directors must observe:

1. Cease Trading Immediately

Once you suspect your company is insolvent, you must stop trading right away. Continuing to trade while knowing the company can’t pay its debts may be deemed wrongful trading, which can result in personal liability.

2. Act in the Best Interests of Creditors

During liquidation, your legal duty shifts from the interests of shareholders to those of creditors. You must do everything possible to minimise losses to creditors, including preserving company assets and avoiding any preferential payments to certain parties.


Director’s Legal Duties During Company Liquidation


Location: United Kingdom

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