Understand The Insolvency, Bankruptcy And Liquidation – What And When?

Every business company is unique and has its way of doing business. But every businessman has one thing in common – the sleepless nights when they come in the realization that they could be in trouble financially. Be it struggling with HMRC, unpaid debts, voluntarily closing your business, cash flow issues, or any other financial reasons you would need help from an expert. 4R Business Recovery is an expert in providing the right advice on rescue, restructure, recovery and return. 4R Business Recovery began trading as specialist insolvency, business rescue and turnaround consultancy.

Insolvency, bankruptcy and liquidation are often confused a same, so let us try to understand the difference first and when each one applies, specifically in the United Kingdom.


Insolvency happens when the liabilities exceed the assets of the company or an individual. When the company is not able to raise the total amount owed to pay off debt, the company is technically insolvent. It is the state of being is the umbrella term for all the UK subcategories. And there are several avenues available under insolvency law.


Bankruptcy is the legal process. The court declares that the individual or sole traders is insolvent and can no longer pay off their debts. The individual or the company must owe a minimum of £5,000 and will have to file the petition to the court and the Court orders that the individual is bankrupt. The Official Receiver (A civil Servant) is appointed to oversee the bankruptcy.

So, to be precise, insolvency is the umbrella term. And bankruptcy is one of the various options under the insolvency law and is the last resort. Various other steps can be taken to avoid bankruptcy or to implement other insolvency options such as individual voluntary arrangements (IVAs) and debt relief orders (DROs) instead of bankruptcy.


Liquidation is when a company asset is used to pay off its debt. Here the assets are sold to repay the creditors and business close down. The status of the company switches to Liquidation but the company name remains live on the Companies House. But on dissolution which occurs approximately three months after the closure of liquidation of the company, the company name would be removed. The two main types of liquidation process are solvent and insolvent liquidation.

· Solvent liquidation

Solvent liquidation involves the retirement of the director. It could able be when the company chooses to close the business as it serves no further purpose. When the company chose to close the business voluntarily, it is called Members’ Voluntary Liquidation (MVL).

· Insolvent liquidation:

Insolvent liquidation occurs when a company cannot continue the business because of financial reasons. The insolvent liquidation process is done to provide a dividend for all classes of the creditor. But there are chances that unsecured creditors receive little return.

If you are worried about becoming insolvent, the best course of action is to seek advice from the recovery expert. Connect with 4R Business Recovery before it looks late. We will help you with the procedures that can be put in place to ease the cash flow and help you with the avoiding the insolvency, by efficiently negotiating with the creditors through informal arrangements, sole trader voluntary arrangement, chasing up your debtors, selling assets.