Bankruptcy is one route you can take if you have debts you cannot pay. It frees you from your debts, but your assets are divided among your creditors and restrictions are placed on your future business activities. If you become bankrupt through no fault of your own, these restrictions are generally lifted after 12 months.

A company may be forced to close by being taken to court by its creditors, lenders, shareholders, or by the government or legal authorities seeking to wind up the business.

Alternatively, the owners or directors of the business may decide not to continue operating the business and apply to have the business wound up.

The court may rule that the company is passed into the hands of the Official Receiver. The receiver runs the company in the best interests of creditors and shareholders until its " liquidation" - i.e. the sale of the company's assets. Any money raised is used to pay off the company's debts.

You will need to follow the necessary statutory procedures to resolve any outstanding tax, VAT and National Insurance matters with HM Revenue & Customs.

When you sell a business, you may have to pay Capital Gains Tax if you made a profit - referred to as a gain - from the sale of the assets. But, if you use the proceeds from the sale to buy another business, you might be able to defer the gain through business asset roll-over relief.

If your company is registered for VAT, contact HM Revenue & Customs and complete form VAT 7 to cancel your registration, or form VAT 68 to transfer your registration to the new owner.

What are insolvency proceedings?
These are formal measures taken to deal with company debt. There are many different types of company insolvency proceedings. All are covered in this booklet.

Do insolvency proceedings apply to all types of companies?
This information applies to registered and unregistered companies (including overseas companies).

If the liquidation or receivership began before 29 December 1986, then the law in force at that time will continue to apply.

Remember: Not all companies in liquidation are insolvent.

Do all companies have to go through insolvency proceedings before being dissolved?
No. If the Registrar has reason to believe that a company is not carrying on business or is not in operation, its name may be struck off the register and dissolved without going through liquidation. A private company that is not trading may apply to the Registrar to be struck off the register. This procedure is not an alternative to formal insolvency proceedings.

Can anyone supervise insolvency procedures?

All liquidators, administrators, administrative receivers and supervisors taking office on or after 29 December 1986 must be authorised insolvency practitioners.

Receiver managers, Law of Property Act (LPA) receivers and nominees appointed to manage a corporate voluntary arrangement moratorium do not have to be authorised.

Insolvency practitioners may be authorised by:

What happens to the directors of an insolvent company?
The liquidator, administrative receiver, administrator or Official Receiver has a duty to send the Secretary of State a report on the conduct of all directors who were in office in the last 3 years of the company's trading. The Secretary of State has to decide whether it is in the public interest to seek a disqualification order against a director.

Examples of the most commonly reported conduct are:

What is a receiver?
There are many different kinds of receiver and their powers vary according to the terms of their appointment.

An administrative receiver is a receiver or manager of the whole, or substantially the whole, of a company's property who is appointed by or on behalf of the holders of any debentures of the company secured by a floating charge. He or she has the power to sell (or otherwise realise) the assets covered by the floating charge and apply the proceeds to the debt owed to the charge-holder.

Receivers who are not administrative receivers may be appointed in other circumstances. For example, under powers contained in an instrument or document creating a charge over a company's property, a receiver or manager may be appointed until the debt is recovered. Receivers may also be appointed under the Law of Property Act 1925.

Who gives notice of the receiver's appointment?
The person who appoints the administrative receiver, receiver or manager, or has them appointed under the powers contained in an instrument, is responsible for informing the Registrar within 7 days of the appointment. A Form 405(1) is required for each separate charge registered at Companies House over which the Receiver is appointed, whether the appointment is over part of property or all the company’s assets. An administrative receiver must also publish notice of his or her appointment in the Gazette and in an appropriate newspaper.

When the administrative receiver, receiver or manager ceases to act they must notify the Registrar.

What must the receiver send to Companies House?
Within 3 months of appointment, an administrative receiver must make a report to:

The report must explain the circumstances of the appointment and the action the administrative receiver is taking. The report must also include a summary of any 'statement of affairs' prepared for the receiver by the officers or employees of the company.

Statement of affairs
This is a summary of the company's assets, liabilities and creditors. The administrative receiver decides whether it is required and who should prepare it.

All receivers must send an account of receipts and payments for the first 12 months of receivership to the Registrar, and:

Form title	Number
Notice of the appointment of receiver or manager	405(1)
Notice of ceasing to act as receiver or manager	405(2)
Receiver or manager or administrative receiver's abstract of receipts and payment	3.6
Administrative receiver's report	3.10

Please note: Forms 3.6 and 3.10 are not available from Companies House. They can be obtained from legal stationers.

Please Note: Separate Forms 405(1) and 405(2) must be filed for each separate charge, registered at Companies House, over which a receiver is appointed and/or ceases to act, whether the appointment is over part of property, or all the company’s assets.

What is 'compulsory liquidation'?
Compulsory liquidation of a company is when the company is ordered by a court to be wound up.

Which courts can order a compulsory liquidation?
The High Court, or a county court with the appropriate jurisdiction, may order the winding-up of a company. This may be, for example, on the petition of a creditor or creditors on the grounds that the company cannot pay its debts.

A company is regarded as unable to pay its debts if, for example, a creditor:

is owed more than £750;
presents a written demand in the prescribed form (known as a statutory demand (Form 4.1)) to the company; and
the company fails to pay, secure or agree a settlement of the debt to the creditor's reasonable satisfaction.

There are other situations where a company is deemed unable to pay its debts. Please read the relevant legislation.

In the case of a European company (SE) registered in GB, the Secretary of State may petition the Court for a winding up order on the grounds that it appears that the SE does not have both its head office and registered office in GB. For more information on SEs, please see our booklet, ‘The European Company: Societas Europaea (SE)’.

Must the petition be advertised?
Unless the court directs other arrangements, the petition must be advertised in the Gazette.

What appears on the company record held by Companies House?
If the petition is successful, the company must send the winding-up order to the Registrar straightaway and it will be placed on the company's public record.

The petition itself is not presented to the Registrar so it will not appear on the public records.

Who acts as the liquidator when an order is made to wind up the company?
The Official Receiver becomes liquidator on the making of a winding-up order against a company, unless the court orders otherwise.

What are the duties of the Official Receiver as liquidator?
The Official Receiver has a duty to investigate the company's affairs and the causes of its failure.

He also decides whether to call meetings of the creditors and contributories (that is, those people liable to contribute to the assets of the company if it is wound up) for the purpose of appointing a liquidator in his place.

If he decides not to call meetings, he must notify the creditors, contributories and the court of his decision.

On the other hand, if he decides to call meetings, a liquidator may then be appointed in place of the Official Receiver. The liquidator must notify the Registrar of his or her appointment immediately.

If the position of liquidator becomes vacant at any time, the Official Receiver becomes the liquidator for the duration of the vacancy.

What happens when the winding-up is complete?
When the Registrar receives notice from the liquidator of the final meeting of creditors or notice from the Official Receiver that winding-up is complete, the Registrar will register it and publish its receipt in the Gazette.

Unless the Secretary of State directs otherwise, the company will be dissolved 3 months after the notice was registered at Companies House.

If the Official Receiver, acting as liquidator, is satisfied that the company's realisable assets (that is, assets which could be sold or disposed of to raise money) will not cover the expenses of winding-up and that no further investigation of the company's affairs is necessary, he may apply to the Registrar for early dissolution of the company. The company will be dissolved 3 months after the application is registered at Companies House.