What does a liquidator actually do?

The liquidator's work falls into four interlocking functions:

• ›Realisation — converting company assets into cash (selling stock, collecting debtors, realising property).
• ›Investigation — reviewing director conduct, antecedent transactions, dividend lawfulness, wrongful trading exposure.
• ›Distribution — paying creditors in the statutory order set by Insolvency Act 1986 and Insolvency Rules 2016.
• ›Reporting — producing statutory reports to creditors, Companies House, HMRC, and the Insolvency Service.

The liquidator's role is governed by:

• ›Insolvency Act 1986 (the principal statute — particularly sections 91–94 governing the liquidator's powers and section 218 governing investigations).
• ›Insolvency (England and Wales) Rules 2016 (procedural detail).
• ›Company Directors Disqualification Act 1986 (the section 7A reporting duty).
• ›Statements of Insolvency Practice issued by the IPA (the firm's regulatory body) — covering fees (SIP 9), creditor decision procedures (SIP 6), and other procedural standards.

The liquidator takes control of all company assets on appointment. The director's authority over the company has ended — bank accounts come under liquidator control, contracts can be assigned or disclaimed, and asset sales are conducted by or under the liquidator's authority.

• ›Bank account closure — the liquidator notifies the bank of appointment; balances are transferred to the liquidator's client account.
• ›Debtor collection — the liquidator chases outstanding invoices, often appointing an agency for substantial debtors. Compromised debts may be assigned or settled at less than face value.
• ›Asset sale — stock, equipment, vehicles, and other tangible assets are typically sold via auction (cost-effective for SME assets) or through specialist brokers (for higher-value items).
• ›Property realisation — commercial property may be sold or assigned. The liquidator works with surveyors, agents, and solicitors to maximise value.
• ›Intellectual property — trademarks, domain names, customer lists, goodwill — may be sold to a third party or to a connected party (subject to misfeasance protections).

Section 218 Insolvency Act 1986 requires the liquidator to investigate director conduct in every CVL. Not because wrongdoing is suspected — because investigation is the statutory mechanism for protecting creditor interests. The investigation typically covers:

• ›When the company became insolvent on the cashflow and balance sheet tests (section 123 IA 1986).
• ›Whether trading should have ceased earlier — wrongful trading exposure (section 214 IA 1986).
• ›Whether any payments or transfers in the preceding 6 months prefer one creditor over another (preferences, section 239 IA 1986).
• ›Whether any asset transfers in the preceding 2 years were at undervalue (section 238 IA 1986).
• ›Whether any dividends were paid when distributable reserves were insufficient (unlawful dividends).
• ›Director loan account position (drawings vs salary vs dividend).
• ›Compliance with directors' duties (Companies Act 2006 sections 171–177).

If matters of concern emerge, the liquidator may issue formal questionnaires to directors, request further information under section 235 IA 1986 (directors must comply), or bring claims under section 212 IA 1986 (misfeasance) or section 214 (wrongful trading). Successful claims produce personal liability for directors. See the Wrongful trading and Insolvency tests spokes for the underlying frameworks.

Every liquidator must report director conduct to the Insolvency Service under section 7A CDDA 1986. The report covers behaviour in the lead-up to insolvency and during the procedure. The Insolvency Service uses these reports to consider disqualification proceedings under the Company Directors Disqualification Act.

Most reports do not result in disqualification — the report is routine and is not an accusation. Directors who behaved reasonably typically face no consequences from the report.

Once realisations are sufficient, the liquidator distributes proceeds in statutory order:

• ›Secured creditors — to the extent of their security (fixed and floating charge holders).
• ›Preferential creditors — employee arrears (capped) and pension contributions.
• ›Secondary preferential creditors — HMRC for VAT, PAYE, employee NICs, CIS, student loan deductions (from 1 December 2020).
• ›Floating charge creditors — subject to the prescribed part rules (section 176A IA 1986).
• ›Unsecured creditors — the residual class. Typically receive limited or no distribution in SME CVLs.
• ›Members — any surplus after creditors are paid in full (rare in CVL).

Throughout the procedure, creditors receive periodic reports:

• ›Initial report — within 6–8 weeks of appointment, covering scope and expected outcome.
• ›Interim reports — annually, updating on progress, realisations, and distributions.
• ›Final report — on completion of all activities, with full receipts and payments account.

Reports are available to creditors and any director on request. Companies House also receives statutory filings throughout.

From the director's perspective, the liquidator's work is largely invisible after the initial weeks. The director provides information at the start (Statement of Affairs, books and records, questionnaire responses), attends the section 100 decision procedure, and then has periodic contact for queries.

Directors must cooperate under section 235 IA 1986 — failure to cooperate is itself a misfeasance and can result in personal liability.