Can liquidation be reversed?

Liquidation is often a step taken by directors of businesses that are experiencing financial difficulty, once all other options of recovery have been explored.  It marks the formal end of a company, with its assets sold to settle debts and the company struck off the register. For many directors, this feels like a point of no return. 

However, in certain circumstances, a liquidation can be challenged or even reversed. This depends on the type of liquidation, which stage the process has reached and whether there are legal grounds for reversal.

At Bridge Newland, we work with business owners who find themselves in this position and need clear guidance. The rules are complex, but with the right advice, you may still have options.

Understanding the different types of liquidation

There are three main types of liquidation, and each route has its own rules and implications.

• Compulsory liquidation: Started by a creditor through a winding-up petition to the court.
• Creditors’ voluntary liquidation: When directors recognise insolvency and place the company into liquidation with the agreement of creditors.
• Members’ voluntary liquidation: When a solvent company is closed down in an orderly way, so shareholders can receive the surplus assets.

Can you reverse compulsory liquidation?

Yes, you can reverse compulsory liquidation, but it’s the most difficult to reverse. If a winding-up order has been made by the court, you’ll have a short period to act. Directors have five working days to apply for the order to be rescinded.

The court will only grant this if the order was made in error or if the debt has been fully settled. The application must be well prepared and supported by evidence. Without prompt action, the process will continue, and the company will move quickly towards dissolution.

Ideally, upon receiving a winding up petition, for their company to be placed into Compulsory Liquidation, company directors should seek to dismiss the petition or adjourn the petition, prior to the order being granted, if they consider that the Compulsory Liquidation is not correct, or if the debt can be settled in full.

Is it possible to reverse creditors’ voluntary liquidation?

When it comes to a creditors’ voluntary liquidation, reversal is possible but only in limited situations. If the liquidation has not progressed too far, and the company has not yet been dissolved, the directors can apply to the Liquidator, to stop the process but the process can only be stopped upon full payment of all creditors plus interest and costs. 

Once the company has been struck off the register, the only option available is administrative restoration, which you can request for up to six years. Restoration is a formal process that brings the company back into existence, although it can be complex and requires strong justification.

Reversing members’ voluntary liquidation

A members’ voluntary liquidation (MVL) occurs when a company is solvent and its directors choose to close it down. If circumstances change, for example, if there is a reason to continue trading, it is technically possible to reverse an MVL. 

Again, if the Company has been dissolved form the register at Companies House then a court order to restore it to the register would be required.

If the MVL is still live, you should approach the Liquidator to request termination of the MVL where they will follow an exit route which allows the reversal of the resolutions to wind up the company and appoint the Liquidator. However, reversal of an MVL is extremely rare.

Challenges of reversing a liquidation

In every type of liquidation, once assets have been sold and distributed, reversing the process becomes more complicated and often highly disruptive. Creditors, shareholders and staff may all have been affected, so the law treats reversal as the exception rather than the rule. 

The emphasis is always on whether there is a clear legal ground, whether stakeholders are protected and whether there is a genuine commercial or financial benefit in bringing the company back into existence and continuing its affairs.

Looking for liquidation advice? 

If you would like advice on liquidation or reversing liquidation, it’s important to get in touch with us as soon as possible. When it comes to reversing liquidation, acting early improves the chances of success and reduces the disruption for creditors and staff. 

If you would like some professional advice, please get in touch with the experts at Bridge Newland to see how we can help.

Categorised in: Liquidation News