Winding up
Also called: Compulsory liquidation, creditors' voluntary liquidation (CVL), winding-up petition
The formal insolvency process by which a company's affairs are wound up, its assets distributed to creditors and shareholders, and the company dissolved.
Definition
Winding up (or liquidation) is the process by which a company ceases operations, its assets are realised, creditors are paid in a statutory order of priority, and the company is removed from the Companies House register. There are two main types under the <a href="https://www.legislation.gov.uk/ukpga/1986/45/contents" target="_blank" rel="noopener noreferrer">Insolvency Act 1986</a>: <strong>Compulsory liquidation</strong> — ordered by the court (usually the Business and Property Courts) on a winding-up petition presented by a creditor, the company, or a contributory. The petition may be based on a statutory demand that has been unpaid for 21 days, or on the ground that the company is unable to pay its debts (balance sheet or cash flow insolvent). The court appoints an Official Receiver and then a licensed insolvency practitioner as liquidator. <strong>Creditors' Voluntary Liquidation (CVL)</strong> — initiated by the company's directors when they conclude the company is insolvent, without a court order. Directors pass a resolution to wind up; creditors vote to approve the choice of liquidator. In both cases, the liquidator realises assets, investigates the directors' conduct (and may pursue them for wrongful trading under s.214 or fraudulent trading under s.213 of the Insolvency Act 1986), and distributes proceeds in the statutory order: secured creditors; preferential creditors (employees' arrears, pension contributions); unsecured creditors (including trade creditors and tax); shareholders. Unsecured creditors often receive little or nothing.
In practice
If you are a creditor of a company in winding up, register your claim (a "proof of debt") with the liquidator as soon as the appointment is announced. Deadlines are strict — late claims may be excluded from the distribution. Check whether you have a retention of title clause in your contract — goods supplied but not paid for and clearly identifiable may be recoverable before they enter the insolvency estate. For consumer rights when a retailer enters administration, see the <a href="/articles/your-rights-when-business-goes-into-administration" class="body-link">insolvency article</a>. See also the <a href="/glossary/statutory-demand" class="body-link">statutory demand entry</a>.