What Happens If a Company Owes Me Money and Goes into Liquidation?
When a business you trade with owes you money and then enters liquidation, it’s natural to feel frustrated and uncertain. Here’s a detailed guide on how the process works—what you can expect, what steps to take, and how to maximise your chances of recovery.
- First Steps: Getting Noticed by the Liquidator
As soon as a company enters liquidation—whether through a Creditors’ Voluntary Liquidation (CVL) or compulsory winding-up—a licensed Insolvency Practitioner (IP) or Official Receiver takes control. A legal notice is placed in the Gazette and Companies House, announcing the insolvency, and creditors are invited to submit claims.
Register as a Creditor Make sure the liquidator has your details. Even if you’ve already been contacted, it’s vital to actively register your claim to ensure you receive updates.
- Filing a Proof of Debt
To claim a debt, complete and submit a Proof of Debt form:
- Submission: Follow the liquidator’s guidance and respect the deadline.
- Evidence required: Provide invoices, signed delivery notes, contracts, or email correspondence that confirm the debt.
- Interest claims: You may claim interest accrued before liquidation, especially if a contract specifies an interest clause.
Once submitted, the liquidator formally recognises your claim, allowing you to join creditor meetings and receive progress reports.
- Understanding the Creditor Payment Hierarchy
Creditor funds are paid in a strict legal order:
- Liquidation costs: IP fees and administrative costs
- Secured creditors (fixed charge holders): Banks or lenders with specific asset security
- Preferential creditors: Staff owed wages or holiday pay, and some HMRC debts
- Secondary preferential: Certain tax claims, like VAT or PAYE arrears
- Floating charge creditors: Lenders with a general asset charge
- ‘Prescribed part’ ring-fenced for unsecured creditors under floating charge
- Unsecured creditors: For example, trade suppliers (likely where your claim sits)
- Shareholders: Paid last, if anything remains
Since unsecured creditors rank low, recovery often depends on how much remains after all higher-priority debts are paid. In many cases, unsecured creditors receive only a small percentage, if anything.
- Dividend Payments to Creditors
If assets are sufficient, a dividend may be issued:
- Pro-rata distribution: Your share depends on the total assets and creditor claims.
- First dividend payment: Distribution typically happens after all secured, preferential, and floating charge obligations are met around 6–12 months into liquidation.
- Interest eligibility: Interest is only paid on your claim up to liquidation, not after.
- Unpredictability of timing: It may take quite some time before funds are available—some cases stretch over years.
- Recovering Funds If the Company is Already Dissolved
Once liquidation is final and the company is struck off:
- Debts are extinguished—the company ceases to exist, and most creditor claims collapse.
- Exception – personal guarantees: If the debt was supported by a director’s personal guarantee, that still applies.
However, you may still restore the company from insolvency if you believe the business was solvent and viable at the time of liquidation:
- Apply to court to restore the company within up to 6 years of dissolution.
- Once restored, you can recommence debt recovery.
- What Are My Options as a Creditor?
Voluntary Liquidation (CVL)
- You and other creditors participate in meetings.
- You can vote on the liquidator and raise concerns.
- While asset sales are often discounted, the liquidator must act in creditors’ best interests.
Compulsory Liquidation Petition
- If owed enough (usually over £750–£10,000), you may petition the court to force liquidation.
Negotiate a Company Voluntary Arrangement (CVA)
- A CVA allows the company to repay debts over time.
- Creditors vote—75% by value needed to pass.
- You may get more funds than through liquidation if it succeeds.
Consider Receivership or Administration
- These options may preserve the business while paying creditors.
- You can petition for administration if you hold security or an unpaid debt.
Use of Retention of Title Clauses
- If you supplied goods, a retention of title clause may allow you to retrieve goods any time before they’re resold.
- Risks and Things to Watch For
Timing is Critical
- File proof of debt quickly—delay could result in exclusion.
Document Thoroughly
- Keep invoices, contracts, delivery notes, emails—strong documentation can make or break your claim.
Avoid Preferential or Illegal Payments
- If the company made special arrangements paying some creditors but not others just before liquidation, the liquidator may reverse transactions.
Beware of Restoration Costs
- Restoring a dissolved company requires legal work and proof of prior solvency—perform a cost-benefit analysis before action.
- Support and Assistance Across the UK
Find help in your local region:
Big cities: London, Manchester, Birmingham, Glasgow, Edinburgh, Leeds, Bristol, Liverpool, Sheffield, Nottingham, Newcastle, Cardiff, Leicester, Oxford
Small towns & villages: Buxton, Matlock, Rochdale, Altrincham, Macclesfield, Telford, Halifax, Prestbury, Alderley Edge, Tibshelf, Wellow, Eynsham, Great Tew.
Local insolvency specialists and creditors’ advisory firms can provide:
- Assistance with proof of debt
- Retention of title enforcement
- Advice on issuing winding-up petitions
- Negotiation help for CVAs or administration proposals
- Practical Checklist as a Creditor
- Track the insolvency via Gazette and Companies House.
- Register as a creditor ASAP.
- Submit proof of debt with documentation.
- Vote in creditors’ meetings and ask questions.
- Monitor asset realisations and dividend updates.
- Consider CVA or administration participation.
- Check for restoration opportunities if the company is struck off.
- Understand your position in the creditor hierarchy and set realistic expectations.
- Why Independent Advice Matters
Professionals can spot retention of title issues, help preserve creditor rights, and negotiate outcomes. They can often turn a fruitless liquidation into a partial recovery via CVAs, petitions, or restoration strategies.
- Summary: Can You Get Your Money Back?
- Possibly—but not guaranteed.
- Success depends on whether the company holds enough assets after secured and preferential debts are paid.
- Unsecured creditors often receive little—but early and accurate filing improves chances.
- Enforcement tools and court actions are available, but expensive and not always viable.
- Restoration is a last resort when a company was improperly wound up.