When a startup fails, how does it typically liquidate assets?

If a limited company finds after very few months of trading that its performance in either income generation or profit generation is not sufficient to meet its liabilities, its directors may wish to take action to wind up the company.

At that stage it is likely that the company will have modest assets and may still have modest liabilities. Hence it may be cost-effective for the directors to consider dealing with the wind-down of the companies affairs themselves by collecting amounts due in from customers by realising stock and disposing of chattel assets and thereafter making provision for the payment of the companies debts in so far as its possible.

In those circumstances it will also be appropriate for the directors to write to all creditors to advise them that the company is winding up its affairs and, in particular, to alert HMRC to this. However, it will also be sensible for directors to assess the complexity of the work required to realise the company’s assets and deal with its creditors, especially if there are any disputed debts or complex issues with the realisation of assets.

It is, therefore, most sensible for directors to always seek professional advice on this process from licensed professionals who deal with the winding up of companies if only to receive assurance that it would not be cost effective for a formal winding up process to be undertaken and to just generally obtain advice.