A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Liquidation vs Bankruptcy: What's the Difference?
Although they sound similar, liquidation and bankruptcy apply to entirely different entities and serve different purposes. Confusing them can lead to the wrong advice and the wrong decision.
The Key Distinction
- Liquidation is a company insolvency procedure. It closes a limited company (or partnership), realises its assets, and distributes them to creditors. It does not affect the personal finances of the directors - unless personal liability arises.
- Bankruptcy is a personal insolvency procedure. It applies to an individual, writing off most personal debts and usually discharging the bankrupt person after 12 months.
At a Glance
| Liquidation | Bankruptcy | |
|---|---|---|
| Applies to | Limited companies, partnerships | Individuals |
| Outcome | Company is dissolved | Individual is discharged (debts written off) |
| Who is affected | The company and its creditors | The individual and their personal creditors |
| Assets | Company assets are realised | Personal assets may be realised |
| Duration | 12 to 24 months typically | Discharge usually after 12 months |
How They Can Be Connected
A company liquidation can lead to personal insolvency for a director - for example, where the director has signed personal guarantees, has an overdrawn loan account, or is found liable for wrongful trading. In these cases, the director may need to consider a personal solution such as an IVA or bankruptcy to deal with the personal debts that follow the company's liquidation.
Which One Do You Need?
- If your company cannot pay its debts, you need liquidation (a CVL), administration, or a CVA - corporate insolvency procedures.
- If you personally cannot pay your debts - including personal guarantees - you need a personal solution such as an IVA or bankruptcy.
- It's common to need both: close the company via liquidation, then address any personal liability separately.
Speak to a Licensed IP
Our Manchester-based practitioners advise on both corporate and personal insolvency, so we can help you see the whole picture. Call us for honest, confidential advice.