Liquidation is not a clean exit. It is a process built to prioritise creditor recovery and regulatory targets, often leaving directors exposed to claims that drain time, money and attention. As pandemic-era support fell away and tougher trading took hold, more companies have been wound up and more directors have discovered-too late-that the route into and out of liquidation is strewn with claims for misfeasance, director disqualification investigations, compensation orders and, in some cases, criminal enquiries.

The first reality check is who the proposed liquidator actually serves. Insolvency practitioners act for the company and its creditors, not for you. Their statutory duties require them to investigate and, where they see grounds, recover funds. That is not misconduct; it is the framework. But it does mean the advice you receive before appointment must be independent. Too many directors enter a Creditors’ Voluntary Liquidation or are pushed into a compulsory winding up on the false assumption the IP they found online is there to protect them. He or she is not.

Timing matters. When an HMRC winding-up petition lands, there is usually a window of weeks before the court hearing. That period can be used to obtain specialist advice, stabilise records, assess alternatives such as a Company Voluntary Arrangement or Time to Pay with HMRC, and decide-eyes open-whether a voluntary liquidation with a chosen practitioner is wiser than falling into the Official Receiver’s caseload. Early, independent advice often changes outcomes and, in some cases, postpones liquidation to complete remedial steps that reduce personal risk.

Expect scrutiny of your director’s loan account (DLA). An overdrawn DLA at liquidation is treated as money you owe the company, and liquidators routinely seek repayment. Even a DLA in your favour will be examined. The High Court’s decision in Manolete Partners Plc v Matta [2020] EWHC 2965 (Ch) is a reminder that vague explanations will not carry the day; the director in that case was ordered to repay, plus costs. Dividends declared late in the day to cancel drawings rarely withstand challenge if the company was insolvent or had no distributable profits. Movements in the DLA during the two years before a CVL can also be recharacterised as preferences or transactions at an undervalue. If this is your position, gather evidence of salary entitlements, expenses policy and board approval now-before anyone else writes the narrative for you.

Large Crown debts are a lightning rod for action. Significant arrears of VAT, PAYE, NIC or Corporation Tax at the point of liquidation frequently trigger Insolvency Service interest and can lead to director disqualification. They can also lead to Personal Liability Notices (PLNs), which shift company tax debts on to the director personally. That is not inevitable. The context-attempts to agree a Time to Pay, steps to reduce liabilities, and how funds were prioritised-matters. Well-documented efforts to treat creditors fairly can limit or defeat PLN exposure; silence and poor records do the opposite.

Books and records are non‑negotiable. Failing to keep, maintain or deliver up adequate records is both a civil and criminal offence. Directors do go to prison for it. “Adequate” is judged by the company’s trading profile: point‑of‑sale data for a retailer, job costing and timesheets for a contractor, purchase and stock records for a wholesaler, and so on. If records are scattered, act fast: secure accounting files, bank statements, payroll, VAT returns, contracts and emails; create an index; then deliver them to the liquidator with a dated schedule. That simple discipline often averts criminal escalation and reduces suspicion elsewhere.

Unlawful dividends are a recurring own goal. Distributions are only lawful from accumulated, realised profits with proper paperwork. Reclassifying drawings as “dividends” at year‑end to clear an overdrawn DLA-when the company is insolvent-invites recovery action against the director and, in some cases, shareholders. If you paid yourself or family members dividends in the run‑up to failure, get an accountant to assess whether there were distributable reserves on the relevant dates. Where there were not, prepare for a repayment discussion and develop a credible settlement plan before the liquidator issues proceedings.

Co‑operation is required, but it should be structured. Ignoring a liquidator’s requests typically results in court applications under sections 234 to 237 of the Insolvency Act 1986, compulsory examinations on oath and, if you fail to attend, orders for arrest. The legal costs of those steps are usually added to the pot and can escalate quickly. Engage early, keep responses factual and complete, and work through a lawyer to avoid volunteering material that is irrelevant or prejudicial. Co‑operate-but do so with a plan.

Expect a trawl of “antecedent transactions” in the two years before liquidation. Liquidators commonly allege preferences, transactions at an undervalue, wrongful trading, unlawful distributions and section 423 transactions defrauding creditors. Many of these are packaged as misfeasance claims under section 212, which allows recovery plus costs. These cases turn on evidence. If you repaid a connected lender, sold assets cheaply, or moved value to a newco, assemble valuations, board minutes and independent advice that existed at the time. Ordinary‑course payments on commercial terms and decisions taken to preserve overall creditor value can be defensible-if you can prove them.

The “prohibited name” rules catch out capable directors. Section 216 of the Insolvency Act 1986 bans a director of a company that has been liquidated from taking part in a business with the same or a similar name for five years, unless an exception applies. Breach can lead to personal liability for the newco’s debts and criminal prosecution under section 217. There are exceptions-but they are technical and time‑critical, including strict notice and timing requirements and, in some cases, the need for court permission. If you intend to trade on a similar name, take advice before appointment, not after.

Family directors are not spare parts. A spouse or partner who acted as a director in name only still owes the same statutory and fiduciary duties. That does not mean they are doomed to the same outcomes, but it does mean they need their own advice. Establish who did what, minute it, and make decisions about resignation or role changes well before any formal step. A credible, documented division of responsibilities reduces personal risk and avoids unfair settlements that treat the “uninvolved” director as easy prey.

Personal guarantees often crystallise the moment a company goes into liquidation. Trade suppliers, invoice discounters, mainstream lenders and fintech funders-including Funding Circle in many files we review-pursue guarantees quickly. Not all guarantees are enforceable as drawn. Many can be challenged on notice terms, incorrect demand, scope creep or unfair charges and default interest. Where liability is clear, realistic negotiated outcomes are common: staged repayments, haircuts, and deeds that avoid judgment. Do not wait for proceedings; initiate the discussion with a full picture of your finances and a proposal that looks credible on day one.

Directors cannot bury liabilities through dissolution. The government has armed the Insolvency Service with retrospective powers to investigate the conduct of directors of dissolved companies, particularly where pandemic loans were involved. Courts have been prepared to impose long disqualification periods-often 11 to 12 years-where funds were misused or where strike‑off was used to avoid scrutiny. If you are considering striking off, assume your conduct may still be examined and plan accordingly.

Government‑backed loans, particularly Bounce Back Loans (BBLs), remain the single biggest driver of enforcement. The British Business Bank reported around 1.5 million BBLs with £46.1 billion drawn and estimated fraud of £4.9 billion. Recent Insolvency Service enforcement outcomes indicated that a majority of director disqualifications in 2023 and 2024 involved BBLs. That does not make every director who took a BBL a fraudster. Permitted uses were broad, guidance shifted, and many directors used funds to pay suppliers and keep staff employed. The directors who fare best show a clear, documented business purpose for each drawdown and can explain cashflows with bank statements, invoices and emails. The earlier that collation starts, the more credible the defence and the better the settlement terms if one is needed.

There are alternatives to an immediate liquidation that are too often ignored. If the business is viable on a realistic forecast, explore a CVA with independent oversight, a consensual restructure with key creditors, or a Time to Pay agreement with HMRC before the petition arrives. If liquidation is unavoidable, take control of the variables: prepare records, stop unlawful dividends, cease preferential repayments to connected parties, and stress‑test whether any asset sales meet market value. When meeting potential IPs, ask about fee basis, caps and conflict disclosures in writing and make the appointment only once you have your own legal advice.

If you are already post‑appointment, triage fast. Answer section 235 requests fully and on time, but do not guess. If something is missing, say so and explain what you are doing to locate it. Where claims are intimated, ask for particulars, the legal basis and the quantum including costs. Many misfeasance and DLA cases settle for a fraction of the headline figure when directors present a documented explanation, a solvency snapshot from the relevant dates, and a payment plan that avoids wasteful litigation. Consider whether there is D&O insurance, and if a PLN is threatened seek specialist tax litigation input immediately.

The insolvency system will not protect you; it will test you. The answer is not denial or blind trust but preparation and control. Get independent advice early, understand the specific traps that apply to your company, keep your own written record of decisions, and go into any liquidation with a plan that places you-not the liquidator-in charge of your evidence and your outcomes.