What Happens To A Director Of A Company In Liquidation?
Navigating insolvency is one of the most stressful times a business can face.
According to recent statistics, the number of registered company insolvencies in England and Wales was 2,022 in March 2026, 7% higher than in February 2026 (1,895).
In this situation, have you ever wondered what happens to a director of a company in liquidation?
Whether it’s a voluntary exit or compulsory liquidation, our guide breaks down what happens to a director of a company in liquidation.
Summary: What Happens To A Director Of A Company In Liquidation?
- Know the different types of liquidation and how it can affect the process for a director
- A director will immediately lose control of assets once a liquidator is appointed
- Understand the personal liability risks and ensure that creditors are prioritised
- Be prepared for an investigation into director conduct
- You are able to start again and become the director of a new company under certain rules and regulations. Seek advice from an insolvency practitioner
Compulsory liquidation vs. Voluntary liquidation
Before fretting, it’s important to understand what liquidation is and what are the types of liquidation a director can face.
Company liquidation happens when a liquidator is appointed to formally and legally close a company down. They take control of the business to “liquidate” assets – meaning, they can convert it into cash.
The experience of a director can vary based on what type of liquidation the company is going through:
- Creditors’ Voluntary Liquidation (CVL): This is initiated by you. It shows you are acting proactively in the interest of creditors, which often reflects better during the conduct investigation.
- Compulsory Liquidation: This is a court-ordered process, usually following a Winding Up Petition from a creditor (like HMRC). In compulsory liquidation, directors have no choice over which liquidator is appointed.
To learn more about the different types of liquidation, read our dedicated article: An All-In-One Guide To The Different Types Of Liquidation
What happens with the control of the company?
One of the first things that will happen to a director of a company in liquidation is immediate loss of control. Once a liquidator is appointed, you can no longer:
- Enter into any contracts on behalf of the company
- Have access to or move company funds
- Make decisions regarding the company’s assets or staff
The primary goal of the liquidator is to take over the management of the business and fairly repay creditors.
Are there any personal liability risks?
As the director of a company, your primary duty is to your shareholders. However, when a business becomes insolvent, your legal obligation shifts to the company’s creditors.
Failing to repay and prioritise creditors can result in personal liability for company debts during insolvency.
You may also be held personally liable if:
- Personal Guarantees (PGs): You signed a PG for a bank loan, lease, or supplier. Liquidation often triggers these guarantees
- Overdrawn Director’s Loan Accounts: If you owe the company money, the liquidator will treat this as an asset and will demand repayment to satisfy creditors
- Wrongful Trading: A court may order you to personally contribute to the company’s assets if you are found guilty of wrongful trading
Investigation into conduct
Every liquidation involves an investigation into director conduct. The liquidator is legally required to submit a report to the Insolvency Service regarding the actions of the directors in the time leading up to the insolvency.
In this investigation, they will look for evidence of:
- Wrongful Trading: continuing to trade or incur debt despite knowing insolvency looks likely for the company
- Fraudulent Trading: purposely intending to defraud creditors
- Misfeasance: misusing company funds or assets
If this investigation finds any evidence of the above, it can lead to up to 15 years of director disqualification.
Can I start again as a director of another company?
The answer is generally yes, provided that you have not been declared “unfit” and disqualified after investigation.
There are strict “Phoenix Company” rules (Section 216 of the Insolvency Act) that prevent you from trading under the same name or similar for five years unless certain expectations are met.
Starting over is perfectly legal, but the “how” matters. If you intend to purchase the assets of your old business or use a similar name, you must seek specialist insolvency advice before the liquidation.
For more details, read our dedicated guide: What is a phoenix company?
You can also find more details on closing down and opening a new limited company in our guide: Can I Close My Limited Company And Open A New One?
Further information
If you found this article useful, in other guides we address a wide range of common queries including:
- Is There A Penalty For Not Issuing Payslips?
- What Is A Compulsory Strike Off? All You Need To Know
- Statute Barred: How Long Can A Debt Be Chased In The UK?
- What Is A CCJ? An In-Depth Guide to County Court Judgements
We can help if you’re preparing for a company liquidation or company administration and have concerns about the director’s conduct report process.
Our licensed insolvency practitioners can provide more detail about what the conduct report involves and guide you through your responsibilities. To find out more, please contact us.
