Simple Liquidation

Simple Liquidation regularly assists directors exploring voluntary closure options when businesses face creditor pressure, HMRC arrears, or worsening cashflow problems. Acting early and understanding available insolvency solutions can often help directors achieve a more controlled outcome during difficult financial circumstances.

Not every investigation leads to wrongdoing being identified. Many businesses fail because of economic pressure, rising costs, reduced demand, or cashflow problems. However, if the liquidator discovers evidence suggesting misconduct or poor financial management, further action may be taken.

One of the biggest reasons behind continued insolvency pressure is the increase in business operating costs. Energy prices, wages, commercial rents, insurance premiums, and supplier costs have all risen significantly over the past few years. These increases have placed enormous pressure on company profit margins, particularly for SMEs operating in sectors such as hospitality, retail, construction, and transport. Even businesses generating steady revenue are finding it increasingly difficult to maintain healthy cashflow.

Corporation Tax arrears can quickly become a serious issue for UK businesses. If tax remains unpaid, HMRC may charge interest, issue penalties, begin debt recovery action, or even pursue a winding up petition. Many companies experiencing cash flow pressure struggle to keep up with tax liabilities alongside rising operating costs and borrowing expenses. In some cases, HMRC may agree to a Time To Pay arrangement, allowing debts to be repaid in instalments. However, ignoring Corporation Tax arrears can increase financial and legal risks significantly. Directors should monitor their company’s financial position carefully and understand the potential consequences of continued non-payment.

Commercial property liabilities can have a serious impact on a company’s financial stability in 2026. Rising rents, lease obligations, business rates and operational costs are increasing pressure on businesses across the UK. When liabilities begin to outweigh assets, companies may face balance sheet insolvency, even if day-to-day trading continues. Sectors with high fixed property costs, including retail, hospitality and manufacturing, are particularly vulnerable. Directors should monitor financial statements carefully and review liabilities regularly to identify early warning signs of distress. Seeking professional insolvency advice early can help businesses explore restructuring options, manage creditor pressure and protect directors from further legal and financial risks.

Commercial property costs are becoming a major concern for UK businesses in 2026. Rising rents, higher business rates, increasing utility bills and ongoing tax changes are placing pressure on company finances across multiple sectors. Many businesses, particularly SMEs, are struggling to manage growing overheads while consumer spending remains uncertain. For retail, hospitality and office-based companies, commercial premises are often one of the largest fixed expenses. When combined with inflation and cash flow challenges, these rising costs can increase the risk of financial distress and insolvency. Businesses should monitor expenses carefully, review financial performance regularly and seek professional advice early if financial pressure begins to grow.

Hospitality businesses across the UK could face a challenging year in 2026 as rising costs continue to put pressure on cash flow. The impact of business rates revaluation and tax changes may increase the risk of insolvency for pubs, restaurants, cafés and hotels already operating on tight margins. Higher National Insurance contributions, wage increases and rising business rates could significantly reduce profitability. At the same time, reduced consumer spending may further affect revenue across the sector. Businesses struggling with HMRC arrears, rent payments or supplier debts should seek professional advice early to explore recovery options and avoid further financial difficulties or potential liquidation.

This guide outlines the key considerations for directors navigating insolvency risk in 2026.

Even if trading conditions improve, companies may still struggle to service historic liabilities. Recovery in revenue does not automatically eliminate accumulated debt. For some businesses, insolvency becomes unavoidable months or even years after the initial shock.

When a company enters liquidation, directors often consider starting a new business. However, UK law places strict rules on what you can call that new company. One of the most important regulations to understand is Section 216 of the Insolvency Act 1986, which governs the use of “prohibited company names”. A prohibited company name is one that is the same as, or so similar as to suggest an association with, a company that has gone into insolvent liquidation. This applies to names used within the five years following the liquidation. The purpose of this rule is to prevent directors from misleading customers, suppliers, and creditors by creating a new business that appears to be a continuation of the old one. This is often referred to as “phoenixing”, and while starting again is legal, doing so under a confusingly similar name is tightly controlled.

There is no automatic ban on directors starting a new company after liquidation. If you have acted responsibly and complied with your legal duties, you are generally free to become a director again and run another business.

When a company begins to experience financial distress, the responsibilities of its directors change significantly. Under UK law, once insolvency is likely, directors must shift their focus away from shareholders and instead prioritise the interests of creditors. Understanding these legal duties is essential to avoid personal liability and ensure a compliant closure process. A company is considered insolvent if it cannot pay its debts as they fall due, or if its liabilities exceed its assets. Directors must actively monitor the company’s financial position and act quickly when warning signs appear. Ignoring insolvency or delaying action can lead to serious legal consequences. Once insolvency is evident, directors are legally required to act in the best interests of creditors. This means taking steps to minimise losses and avoid actions that could worsen the financial position. Decisions that may benefit shareholders but harm creditors can be challenged during liquidation.

At this stage, the liquidator takes over responsibility for the company’s financial affairs. They will contact the bank, inform them of the liquidation, and arrange for the account to be transferred under their control. The liquidator may either use the existing account or open a new insolvency account where all funds are consolidated. Any money held in the company’s bank account forms part of the company’s assets. These funds are then used as part of the overall liquidation process. The liquidator will gather all available assets, including cash balances, and distribute them to creditors according to the legal order of priority.

When a company enters liquidation, its assets are sold and the proceeds are distributed to creditors. However, not all creditors are treated equally. UK insolvency law sets out a strict order of priority that determines who gets paid first. Understanding this hierarchy is important for directors and creditors alike. Once a company goes into liquidation, a licensed insolvency practitioner is appointed as the liquidator. Their role is to take control of the company’s assets, realise their value, and distribute funds to creditors in accordance with the legal order of priority. This process ensures fairness and transparency. At the top of the payment hierarchy are secured creditors with fixed charges. These are lenders who have security over specific assets, such as property, machinery, or vehicles. Because their lending is backed by particular assets, they have the first right to be repaid from the sale of those assets. For example, if a bank holds a fixed charge over a company’s premises, it will be paid from the proceeds of that sale before others.

HMRC has also taken a more active approach to recovering unpaid taxes. During the pandemic, many businesses benefited from deferred payments and support schemes. However, those measures have ended, and tax authorities are now pursuing outstanding debts more aggressively. Businesses with arrears in VAT, PAYE or Corporation Tax may face enforcement action, including winding up petitions, which can push companies towards liquidation if liabilities cannot be managed.

When a company enters a Creditors’ Voluntary Liquidation (CVL), its financial position has reached a point where it can no longer continue trading. This naturally raises questions about what happens to existing business contracts, including agreements with suppliers, customers, landlords, and service providers. Understanding how contracts are treated during a CVL can help directors prepare for the process and manage expectations. In most cases, business contracts do not automatically terminate the moment a company enters liquidation. However, the appointment of a liquidator significantly changes how those contracts are handled. Many commercial contracts include insolvency clauses, which allow the other party to terminate the agreement if the company enters liquidation. This means that once a CVL begins, suppliers or service providers may choose to end their contracts immediately.

When a limited company in the UK is no longer viable, directors must decide how to close the business in a compliant and responsible way. Two options that are often considered are Creditors’ Voluntary Liquidation (CVL) and company dissolution. While both methods lead to the closure of a company, they serve very different purposes and are used in different financial circumstances. Understanding the key differences between these two procedures can help directors choose the correct route when dealing with an insolvent company. Company dissolution, sometimes referred to as striking off, is a relatively simple process used to remove a company from the Companies House register. Directors can apply for dissolution if the company is no longer trading and has no significant debts. To qualify for dissolution, the company must meet several conditions. It should not have traded or changed its name within the previous three months, and it must not be involved in any legal proceedings or insolvency procedures. Directors submit a formal application to Companies House, and if no objections are raised, the company is eventually struck off the register.