Can you sue a company in creditors voluntary liquidation

Can you sue a company in voluntary liquidationYes, you can sue a company in liquidation, voluntary liquidation occurs when a company’s shareholders or directors make a decision to wind up the company’s affairs and distribute its assets among its creditors.

When a company enters voluntary liquidation, it is typically insolvent or unable to pay its debts. As a result, pursuing legal action against such a company can be difficult because its assets may be insufficient to satisfy all of its outstanding obligations. However, it is not impossible to sue a company in voluntary liquidation.

Depending on the circumstances, there may be avenues available to pursue legal action, such as holding the company’s directors personally liable for their actions or seeking recovery from third parties who may be responsible for the company’s financial difficulties.

Why would you sue a company in liquidation?

Bringing a claim against a company in liquidation may be necessary for several reasons. First and foremost, it could be a means to seek compensation or redress for any losses or damages suffered as a result of the company’s actions or negligence.

This could include breach of contract, product liability, fraud, or other types of misconduct. Additionally, initiating a claim can help preserve one’s legal rights and ensure that they have a chance to participate in the liquidation process.

By asserting a claim, individuals or entities can potentially secure a priority position in the distribution of the company’s assets, which may increase their chances of recovering at least a portion of what they are owed.

While the overall success of the claim will depend on the specific circumstances and available assets, it is essential to consult with legal professionals who can assess the viability of the claim and guide individuals through the complex process of pursuing a claim against a company in liquidation.

Making a claim against against insolvent companies

When a company or individual finds themselves in a formal insolvency or enforcement process, certain limitations may come into effect regarding the ability of creditors or potential creditors to pursue claims against the insolvent party.

It’s important to note that these restrictions exist separately from the practical considerations of whether it is financially viable or otherwise worthwhile to initiate or proceed with a claim against an insolvent adversary.

Such considerations involve evaluating the potential economic benefits or drawbacks of taking legal action against an insolvent party. While legal constraints may impact the course of action, the decision to pursue or continue a claim against an insolvent opponent should also factor in broader commercial considerations.

How to bring a claim against an insolvent company

In situations where a creditor lacks a proprietary claim, meaning a claim against an asset held by the insolvent defendant or the office-holder on their behalf (such as a retention of title claim), it becomes crucial to carefully evaluate the feasibility of pursuing a disputed debt claim against an insolvent defendant.

Without a proprietary or secured claim, the claimant will be treated on an equal footing with other unsecured creditors in accordance with the statutory order of priority. Consequently, if the debt is disputed, any actual dividends received will be subject to the same statutory order of priority and will depend on the available assets for distribution, often resulting in a relatively modest percentage of the total claim being recovered.

Therefore, it is essential for creditors to consider the cost-benefit analysis and assess whether it is worthwhile to pursue a claim for a disputed debt against an insolvent defendant in the absence of a proprietary claim.

Even if the liquidator has already distributed dividends without being aware of a claim, it is still possible to pursue a claim against the company. If there are remaining assets and the claim is acknowledged, a catch-up dividend should be paid to address the outstanding claim.

It is important to note that once the liquidation process is completed and the company is dissolved, it loses its legal identity. Consequently, no claims can be brought against a dissolved company.

In order to initiate a claim against a dissolved defendant, it is necessary to restore the relevant company to the Register of Companies. This restoration process allows for the reinstatement of the company’s legal status, enabling the pursuit of claims against it.

When a company enters liquidation, the passage of time for potential claims effectively halts. This principle does not apply to administration proceedings. Claimants should take proactive measures to protect their interests, such as submitting a protective claim form with the administrator’s consent or obtaining an acknowledgement of debt from the administrator, with the approval of the court if necessary.

To safeguard the rights of creditors, the office-holder has the authority to challenge certain transactions conducted by the company before the insolvency. These transactions include those where the company disposed of assets significantly below their value or favored specific creditors by paying them in full, bypassing the statutory order of priority. If an antecedent transaction is successfully contested, the court may issue an order to reverse the transaction or provide other forms of restitution.

It is important to exercise caution when receiving payments from debtors that could potentially be later recovered by a liquidator as preferential payments. Consideration should be given to the circumstances surrounding the payment, such as whether it was made under the threat of legal action.

It is generally more favourable to have received the payment and face the possibility of being pursued by a liquidator in the future, rather than being an ordinary unsecured creditor in the liquidation process.

Frequently asked question

Can you take legal action against a company in liquidation?

Yes, you take legal action against a company in liquidation. However, there are many hurdles to cross when a company enters voluntary liquidation that can make it difficult to get your claim heard and processed. As a result, it is often not a commercially worthwhile pursuit.


In conclusion, bringing a claim and suing a company in voluntary liquidation requires careful consideration of the legal and practical implications. While restrictions may exist on initiating or continuing legal proceedings, there are circumstances where a claim can still be pursued, such as proprietary claims against the company’s assets.

It is crucial for claimants to assess the potential benefits and drawbacks, including the likelihood of recovering their debts, considering the limited assets available for distribution.

Seeking professional legal advice is essential to navigate the complexities of voluntary liquidation and determine the best course of action.

Ultimately, understanding the legal framework and weighing the economic and strategic factors will help claimants make informed decisions when contemplating legal action against a company in voluntary liquidation.

Simply complete the online enquiry form and one of our team will make contact if you will to make a claim against an insolvent company.

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.