9 Essential Steps Every UK Director Must Take Before Going Into Liquidation
How to protect yourself, your employees, and your future when your company is in trouble
When a business reaches the point where liquidation is on the table, most directors feel the same mix of stress, worry, and uncertainty. In Greater Manchester, we see this across every sector: construction firms in Oldham, e-commerce businesses in Rochdale, hospitality operators in Bury, trades and transport companies in Heywood and Middleton.
Liquidation isn’t failure – it’s a legal process designed to draw a line under a difficult chapter. But there is a right way to approach it, and a deeply damaging way.
At CCM, we spend a significant part of our insolvency and forensics work helping directors avoid unnecessary personal liability. And time and time again, we see the same problems: late decisions, poor documentation, directors continuing to trade when they shouldn’t, and a general misunderstanding of what liquidation actually involves.
This blog sets out the nine essential steps every UK director must take before entering liquidation, informed by real-world cases and the common pitfalls we see locally. Whether you’re a sole director of a microbusiness or running a company with 20 staff, these steps apply to you.
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Stop Guessing-Get Your Financial Records in Order
Liquidators will scrutinise every aspect of your company’s financial position. That includes:
- bank statements
- VAT returns
- PAYE records
- director loan positions
- sales and purchase ledgers
- contracts and commitments
- finance agreements
If your records are incomplete, out of date, or scattered across email, spreadsheets, and old accounting systems, you’re automatically at a disadvantage.
What this means for you
- Poor records increase the risk of personal liability, including wrongful trading or misfeasance claims.
- You won’t be able to properly advise staff, creditors, or lenders.
- You make the liquidator’s job harder – and far more expensive.
Good records protect you professionally and personally.
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Understand Your Personal Guarantees – Don’t Wait for the Shock
Most directors don’t actually know which debts they’ve personally guaranteed.
In Greater Manchester, we routinely see PGs attached to:
- overdrafts
- bounce back loans top-ups
- invoice finance
- asset finance
- rent and lease agreements
- supplier credit
- company vehicle leases
A personal guarantee survives liquidation, and the lender can pursue you directly.
What this means for you
Before doing anything else, list every potential PG and get clarity on:
- your outstanding exposure
- whether security is attached
- whether a settlement is possible
Ignoring PGs is one of the fastest ways to turn a company liquidation into a personal financial crisis.
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Stop Taking Money Out of the Company – Especially via Your Directors’ Loan Account
Overdrawn directors’ loans are one of the biggest problem areas.
If your DLA is overdrawn at liquidation:
- the liquidator must demand repayment,
- you’ll be treated like a debtor,
- and you may be forced to repay the full balance immediately.
We regularly see directors who:
- drew funds thinking it was “just wages”,
- forgot a dividend needed sufficient reserves,
- or ran personal spending through the company card.
What this means for you
Before liquidation is even discussed, you must:
- stop all non-essential drawings
- understand your current DLA position
- avoid worsening it with last-minute withdrawals
In many cases, early planning allows restructuring before liquidation – but only if you act soon enough.
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Stop Trading If the Company Is Insolvent
It is unlawful to continue trading if:
- the company cannot pay its debts as they fall due, or
- liabilities exceed assets.
Continuing to trade when insolvent can lead to:
- wrongful trading charges,
- personal liability for additional debts,
- and director disqualification.
What this means for you
If you believe your business is insolvent, stop:
- taking new orders
- incurring additional supplier credit
- taking deposits you can’t deliver on
- paying some creditors but not others
Trading while insolvent is one of the most common reasons directors are held personally accountable in liquidation.
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Protect Your Employees – Handle Redundancies Correctly
Employees have significant legal rights when a company enters liquidation.
Before liquidation you must:
- avoid selective redundancies without advice
- avoid paying some staff preferentially
- avoid making promises about future payment
- prepare accurate payroll and holiday records
A liquidator will handle the formal redundancy process, but getting the records wrong beforehand can cause delays and complaints – and can trigger director criticism where records are incomplete.
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Secure Company Assets – No Transfers, No “Mate’s Rates”, No Favouritism
One of the fastest ways to cause serious legal trouble is disposing of company assets before liquidation.
Examples include:
- selling vans, tools, or machinery cheaply
- assigning contracts to a new business
- handing assets to family or friends
- transferring intellectual property or trading names
- removing stock without proper records
Liquidators will reverse these transactions – and may take action against the director.
What this means for you
From this point on:
- no asset sales
- no transfers
- no selective payments
- no “phoenixing” without advice
Everything must be done at market value, properly recorded, and with professional input.
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Communicate Sensibly With Creditors – No Promises You Can’t Keep
When pressure builds, directors often make well-meaning promises:
- “We’ll pay you next week.”
- “A big job is about to land.”
- “The accountant is sorting it.”
Once liquidation begins, those promises come under scrutiny.
If a creditor relied on a misleading statement, they may allege misrepresentation – and that can put you personally at risk.
What this means for you
Keep communication factual and measured:
- don’t make promises
- don’t provide estimates you can’t justify
- don’t tell different creditors different stories
- avoid emotional or reactive emails
A short, neutral update is always better than a panicked explanation.
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Get Honest, Early Professional Advice
Most directors wait far too long.
They speak to the liquidator when the payroll is already overdue, HMRC is threatening visits, or the landlord has locked the unit.
At that point, options are limited.
What this means for you
A good adviser will:
- review your personal exposure
- assess whether liquidation is actually necessary
- explore alternatives (TTP, CVA, accelerated sale)
- protect you from wrongful trading risks
- stabilise communication with creditors
- prepare the business for an orderly wind-down
CCM routinely provides this type of early-stage insolvency and forensics support for local businesses. It’s much easier to protect a director who asks for help early.
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Understand That Liquidation Is a Legal Process – Not a Negotiation
Directors often believe liquidation is like settling a bill:
“I’ll pay what I can and the rest goes away.”
But liquidation is legal, structured, and heavily regulated.
The liquidator’s job is to:
- investigate the company’s affairs
- recover assets
- pursue unpaid DLAs
- review transactions
- examine director conduct
- return funds to creditors in a prescribed order
It is not “just closing the company down”.
Your decisions in the 6–12 months before liquidation are examined in detail.
What this means for you
Your job as a director is to:
- behave properly
- keep proper records
- cooperate with the liquidator
- avoid worsening creditor positions
- avoid last-minute movements of money or assets
Do that, and most cases end cleanly.
Ignore it, and the consequences can follow you for years.
What This Means for Directors Across Greater Manchester
Whether you’re running a construction firm in Oldham, an e-commerce business in Rochdale, a café in Bury, or a transport company in Middleton, the principles are the same.
Liquidation doesn’t define you – but the months leading up to it absolutely can.
The directors who protect themselves are the ones who:
- stop trading early
- stop unrealistic drawings
- keep their records clean
- understand their PGs
- get advice before making any commitments
Handled properly, liquidation is a reset.
Handled badly, it’s a long-term problem.
Need help? Speak to CCM confidentially
If your business is under pressure, the earlier we speak, the more options you have – and the better your personal position will be.
Carter Collins & Myer | Accountants & Tax Advisors
Chichester House, 2 Chichester Street, Rochdale OL16 2AX
01706 868010 | www.uk-ccm.com
Everything you tell us is confidential.
There is always a path forward – but you need to take the first step at the right time.
