If your company is approaching liquidation, one of the most immediate practical concerns is often what happens to the money in its bank account. Can you still pay staff or suppliers? What happens to incoming customer payments? And if there is cash left in the account, does it disappear?
The answer depends partly on how the company enters liquidation and what stage the process has reached. However, once a liquidator is formally appointed, directors no longer control the company’s assets, including the money held in its bank accounts. Understanding what happens before and after that point can help you avoid making transactions that cause problems later.
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Does Your Company Bank Account Get Frozen in Liquidation?
A company bank account will normally stop being available for everyday use once the bank becomes aware that the company is entering formal insolvency proceedings.
The exact timing can differ. In a Creditors’ Voluntary Liquidation (CVL), directors usually begin the process themselves because the company can no longer pay its debts. Once the liquidation is underway and the liquidator has been appointed, the company’s existing bank account is no longer something the directors can continue using as normal.
The position can be more abrupt where a creditor is trying to force the business into compulsory liquidation. GOV.UK guidance states that a company’s bank account can be frozen when a winding-up petition is filed. If access is needed after this point, the company may need to obtain a validation order from the court. This means directors should never assume that money remains available simply because online banking still appears to work.
Once a liquidator is appointed, directors no longer control the company or anything it owns. Control of the company’s property and financial affairs instead passes to the liquidator.
What Happens to Money Left in the Company Bank Account?
Any money in the account belongs to the company. It does not become the director’s money simply because the business is closing.
Where the account has a positive balance, those funds form part of the company’s assets. The liquidator will take control of the available money and deal with it as part of the liquidation.
In an insolvent liquidation, funds realised from company assets are used towards the costs of the process and payments to creditors in accordance with the statutory order of priority.
That can make withdrawing the remaining balance before liquidation seem tempting, particularly if you know the bank account may soon become inaccessible. However, moving money to yourself, another company or somebody connected to you simply to keep it away from the liquidation can create a much bigger problem.
If liquidation is becoming likely, get advice before making unusual transfers or significant payments.
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Anderson Brookes’ licensed insolvency practitioners have helped thousands of business owners dealing with situations just like yours. Their expert advice can help you to understand the impact of any decisions you take, including what will happen to your company bank accounts in liquidation.
Can I Still Pay Wages, Suppliers or HMRC From the Account?
Before the liquidator is formally appointed, the directors may still have control of the bank account. That does not necessarily mean every payment that can technically be made should be made. When a company is insolvent, directors need to consider the interests of creditors. Payments made shortly before liquidation can subsequently be reviewed.
For example, questions may arise if a company:
- repays money owed to a director or family member while other creditors remain unpaid
- clears a debt that a director has personally guaranteed
- pays a connected company ahead of unrelated creditors
- transfers money out without a clear business reason
- makes unusual cash withdrawals shortly before liquidation
This does not mean every payment made while a business is struggling is automatically wrong. Companies still have legitimate costs, and circumstances differ considerably. The important point is that the transaction may later need to be explained. Our guide to what liquidators look for in bank statements explains some of the payments and patterns that may be reviewed during an insolvency.
If you are unsure whether a payment should be made, taking advice before moving the money is usually much easier than trying to resolve the position afterwards.
What Happens if the Company Account Is Overdrawn?
Not every business reaches liquidation with money sitting in the bank. Many companies instead have an overdraft that has been used to support working capital.
If the account is overdrawn, the amount owed to the bank is a company liability. The bank may therefore become one of the company’s creditors in the liquidation.
The precise outcome can depend on the banking arrangements. For example, the bank may hold security over company assets or have other contractual rights that affect what it can recover.
Our guide to business overdrafts in liquidation looks at this situation in more detail.
Directors should also check whether they gave a personal guarantee when the overdraft or other borrowing was agreed. A company entering liquidation does not automatically cancel a valid personal guarantee.
What If You Personally Guaranteed the Bank Debt?
A limited company and its directors are separate legal persons. Ordinarily, that means a company’s debts belong to the company. A personal guarantee, however, changes the position. If you guaranteed an overdraft, loan or other banking facility, the lender may be able to pursue you personally for some or all of the guaranteed debt if the company cannot repay it.
For example, suppose the company has a £20,000 overdraft at the point of liquidation and the director previously signed a £15,000 personal guarantee. The bank can submit its claim in the liquidation, but it may also be able to seek payment from the director under the terms of that guarantee.
Whether and how a guarantee can be enforced depends on its wording and the circumstances. You can find a fuller explanation in our guide to personal guarantees after liquidation.
Worried about personal guarantees?
While directors aren’t typically liable for most company debts, personal guarantees change this. If you’re unsure about your position, it helps to speak to a licensed insolvency practitioner as soon as possible.
What Happens to Payments Customers Still Owe You?
Liquidation does not wipe out unpaid customer invoices. If customers owe money to the company, those outstanding debts are generally company assets. The liquidator can take steps to collect them for the benefit of the liquidation estate.
That means directors should not redirect customer payments into a personal bank account or the account of a new business simply because the original company is about to close. If money is due from customers around the date of liquidation, tell the insolvency practitioner about it and provide details of:
- the customer
- the amount outstanding
- the relevant invoice
- any dispute over payment
- when the money is expected to be received
The liquidator can then determine how the debt should be collected and where payment should be made. This is particularly important if customers have previously paid directly into the company’s existing account, as that account may no longer be available for normal trading transactions.
Will the Liquidator Look Through Your Bank Statements?
Yes. Reviewing the company’s bank statements is a normal part of understanding what happened before liquidation. The liquidator needs to establish what the company owned, where its money went and whether any transactions require further explanation.
They may therefore review matters such as payments to directors, cash withdrawals, transfers to connected businesses, asset-sale proceeds and payments made to particular creditors.
An unusual transaction does not necessarily mean that a director has done anything wrong. There may be a completely legitimate explanation.
Records are important, though. If a payment was for wages, expenses, materials or another genuine business cost, invoices, receipts, payroll records and other supporting documentation can make that much easier to demonstrate.
Directors are required to cooperate with the liquidator and provide company records and information when requested.
What If You Transferred Money to Yourself Before Liquidation?
Payments from a company to its director can take several different forms. You might have received:
- salary through payroll
- reimbursement for business expenses
- repayment of money you previously lent the company
- dividends
- drawings recorded through a director’s loan account
These transactions are not treated in exactly the same way. One area that can become particularly important is an overdrawn director’s loan account. If you have taken more money from the company than you were entitled to receive and the company records that amount as money owed by you, the balance can become an asset that the liquidator seeks to recover.
Our guide to a director’s loan account in liquidation explains what can happen and how the balance may be dealt with.
If you are concerned about money you have already taken from the business, avoid trying to correct the position yourself through further transfers without advice. Give your insolvency practitioner the relevant records so the transactions can be assessed properly.
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What Happens to the Bank Account Once the Company Is Closed?
Liquidation and company dissolution are related, but they are not the same thing. Liquidation is the formal process of dealing with a company’s assets, liabilities and creditors. Once that process has been completed, the company will ultimately be removed from the Companies House register.
This distinction also matters for money left behind. Companies House guidance states that once a company is dissolved, its bank account is frozen and remaining money can pass to the Crown as bona vacantia.
In a properly conducted liquidation, the liquidator will normally deal with company funds and other assets before dissolution. This is one reason why simply allowing an insolvent company to be struck off is not an alternative to dealing properly with its debts and assets.
What Should You Do if Liquidation Looks Likely?
If your company is struggling and liquidation is becoming a realistic possibility, there are a few sensible steps you can take before making further decisions.
- Keep your banking records. Download statements if necessary and retain evidence supporting significant transactions.
- Avoid unexplained transfers. Moving money between the company, yourself and connected businesses can create questions later.
- Check your borrowing. Identify overdrafts, loans, asset finance arrangements and any personal guarantees you may have signed.
- Record money still owed to the company. Keep customer invoices and details of outstanding payments available.
- Get advice before making selective payments. If you are considering paying yourself, a connected party or one creditor ahead of others, speak to a licensed insolvency practitioner first.
At Anderson Brookes, we can review your company’s circumstances and explain whether company liquidation is appropriate, as well as what you should do with the company’s bank account while the position is being resolved.
Get Advice Before Moving Company Money
Losing control of the company bank account can feel unsettling, particularly when there are staff, suppliers and other bills still to consider. However, transferring financial control away from the directors is a normal part of formal liquidation.
What you do immediately before that happens can be just as important. If liquidation is likely, avoid making unusual payments, withdrawing the remaining balance or moving money elsewhere simply to keep access to it. Getting advice early gives you an opportunity to understand what should happen next and to explain any transactions that have already taken place.
Speak to Anderson Brookes for confidential advice from a licensed insolvency practitioner about your company’s financial position and the options available. Call us on 0800 1804 935 to discuss your next steps.