Can a Company Continue to Trade When in Liquidation?

Can a company trade in liquidation?A company cannot continue to trade when it enters liquidation, directors have a legal responsibly and statutory duty to cease to trade. The UK has a series of insolvent laws in place in order to protect creditors from any additional financial loss.

In some cases, a company may be appointed a liquidator who is allowed to carry out very restricted trade. However, it is important to note that the liquidator is always acting in the best interest of the creditors, not the company. When a liquidator continues to trade, it is usually in order to maximise the company’s assets before they are liquidated and transformed into payments for creditors.

In these cases, the liquidator will only carry out essential trade in order to keep the company running long enough to maximise its assets. This may include contracts that are already in place or necessary orders that must be fulfilled. However, all non-essential trade will be ceased in order to focus on liquidating the company’s assets.

As such, it is important for those who are owed money by the company to know that the liquidator is working in their best interests, not the company’s.

Can a company trade in liquidation?

Trading while in liquidation is illegal, unless the trade is overseen by an insolvency practitioner with the permission of the court. Once the decision has been made to force a business into liquidation, its directors should cease trading immediately. Exceptions may arise where completing contracts can aid in the collection of debts, but no further credit should be taken.

This is a critical juncture for the company, and returning from it will be difficult, if not impossible. The company’s assets will be sold off and the proceeds used to pay creditors. If there are any leftover funds, they will go to the shareholders. The business itself will dissolve, and the directors will likely lose their jobs.

All of this makes it clear that directors should not take lightly the decision to liquidate a business. It is a serious matter with far-reaching consequences, and there is often no turning back once the decision has been made.

The simple explanation is that the UK has a series of insolvency laws in place to protect creditors from added financial losses. The main aim of these laws is to ensure that businesses are no longer able to trade once they have entered liquidation, which reduces the chances of company directors committing fraud.

If a company is no longer solvent, it’s a legal requirement for it to stop trading. When a business becomes insolvent, its directors are legally bound to put the interests of creditors first. This means that they must take steps to minimise the losses suffered by creditors, such as by ceasing trading and undertaking a managed wind-down of the business.

In some cases, it may also be possible for the directors to agree on a rescue plan with creditors, which could involve selling off parts of the business or entering into a company voluntary arrangement. However, once a company has entered liquidation, it’s very difficult for it to continue trading in any capacity.

What can happen if I trade while in liquidation?

If a company has entered into liquidation, this means that its assets are frozen and cannot be traded. However, some directors continue to trade, which is illegal. The Insolvency Act 1986 lays out the penalties for doing this, and they are severe. If a director is found to be in breach of the Act, they can be held personally liable under civil and criminal law.

This means that they could be fined or even sent to prison. So, before taking any further action, directors should make sure that they are familiar with the Insolvency Act 1986 and comply with its provisions.

Section 214 of the Insolvency Act 1986 deals with the offence of ‘Wrongful Trading’. This is where directors of a company continue to trade when they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation. If found guilty of Wrongful Trading, directors can be held liable for any losses incurred by the company’s creditors as a result of their actions.

This is a serious offence, and it is therefore crucial that directors are aware of their responsibilities under the Insolvency Act. If you are thinking of entering into insolvency proceedings, it is essential that you seek legal advice as soon as possible to ensure that you do not inadvertently commit an offence.

Is trading in liquidation the same as trading whilst insolvent?

Trading in liquidation is not the same as trading whilst insolvency. When a liquidation order has been issued, the aim of the order is to close a business down and cease all trading across the board. The licensed practitioner will take over proceedings as the company is wound up, and there is no opportunity to continue trading at this stage.

It is common for people to confuse insolvency with liquidation. However, it is important to understand that these are two very different things. Insolvency is a state of being unable to pay one’s debts, while liquidation is a resolution to close down a company. When a company is insolvent, this means that it is unable to pay the money it owes.

This can often be the first step towards liquidation. However, there are a number of options available to rescue the situation before it gets to that point. If none of these options are feasible or applicable, then liquidation will occur and the company will be shut down. Understanding the difference between insolvency and liquidation can help individuals and businesses make more informed decisions about their financial future.

Once a company is placed into liquidation the directors of the company must adhere to certain requirements and legal duties, all of which are in the best interests of the company’s creditors. The company must cease trading in this case, as not doing so will be deemed as wrongful and improper.

If the appointed liquidator uncovers signs of wrongful trading in their investigation into a company, directors will be prosecuted. This could result in a ban from directing a limited company for up to 15 years. The main aim of insolvency procedures is to rescue the company if possible, or to achieve a better result for the creditors than would be if the company was wound up without following these procedures.

It is therefore in the interests of both the creditors and the directors to follow these procedures correctly. If you are facing insolvency, it is important to seek professional advice as soon as possible to ensure that you are taking the correct course of action.

Should I liquidate my company?

Facing up to the possibility that your company might not be able to pay its debts is a daunting prospect. However, ignoring the problem will not make it go away. If your company is struggling to make ends meet, liquidating it might be your best way forward. This may seem like a drastic step, but it could be the best way to protect your personal assets.

Without a doubt, managing mounting debt is the most stressful thing that can happen to a company director. And it’s not just a matter of stress. When it comes to debt management, not complying with the law can result in personal consequences that could chase you for the rest of your life.

When a company is facing financial difficulties, the owner may be tempted to simply close up shop and walk away. However, this can lead to serious legal and financial consequences. The best course of action in such cases is often to enter a Creditors’ Voluntary Liquidation (CVL).

This is a process whereby a licensed insolvency practitioner (IP) is appointed to take care of the company. The IP will bring the company to a close and help your creditors to recover as much money as possible by maximising your realisable assets.

Apart from saving you from legal trouble, making your creditors happy will keep your reputation intact. In turn making it easier to start over again. So, if you’re thinking about liquidating your company, a CVL may be the best option for you.


Directors should be aware of their legal responsibilities when a company enters liquidation, while a disqualification order or risk personal liability should they allow their company to continue to trade when in Liquidation.

Insolvency practitioners will issue guidance to directors on the legalities if a company can or cannot continue to trade during the Liquidation process.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.