This article considers how directors can approach negotiations with a liquidator carefully and constructively, without undermining their legal position.

How to Negotiate with a Liquidator: Without Making Things Worse

SzeChze Tey January 20, 2026

For many company directors, negotiations with a liquidator begin unexpectedly and under pressure. A letter requesting explanations, documents or repayment can quickly escalate into discussions about personal liability, settlement figures and potential court proceedings.

While negotiation with a liquidator is often possible, it is also an area where directors can inadvertently worsen their position. Poorly framed responses, premature admissions or ill-timed offers can increase exposure rather than reduce it. This article considers how directors can approach negotiations with a liquidator carefully and constructively, without undermining their legal position.

1. Recognise When “Negotiation” Has Actually Started

In practice, negotiations often begin earlier than directors realise. Initial correspondence may be presented as an information-gathering exercise, but the content of your response can shape the liquidator’s assessment of liability and settlement value.

It is a mistake to assume that negotiation only begins once a monetary demand is made. By the time a formal claim is issued, much of the groundwork may already have been laid through earlier correspondence.

For this reason, directors should approach early communications with the same care they would apply to negotiations, even where the letter appears informal or preliminary. Directors should assume that all correspondence they submit may later be exhibited to a witness statement or pleadings and relied upon in court proceedings.

2. Understand the Liquidator’s Objectives

A liquidator’s statutory role is to collect and realise the company’s assets and distribute them to the creditors, which in insolvent liquidations includes investigating potential claims and antecedent transactions.

In practice, recoveries are also required to fund the liquidation itself. This creates a strong incentive to identify claims that are commercially viable, even if they are not straightforward.

This does not mean that liquidators act improperly, but it does mean that directors should not assume that a request for payment reflects a concluded or legally watertight position. Negotiation often takes place against a background of uncertainty on both sides.

Understanding this dynamic can help directors avoid reacting defensively or making unnecessary concessions. It is also important to remember that a liquidator is an officer of the court and must act in the interests of the creditors as a whole, rather than on behalf of any single creditor.

3. Do Not Negotiate Before Understanding the Case

One of the most common mistakes directors make is attempting to negotiate before they fully understand what is being alleged. Settlement discussions can be tempting, particularly where litigation is threatened, but early negotiation without clarity can be risky.

Before engaging meaningfully, it is important to establish:

the legal basis of the claim;
the transactions being relied upon;
the relevant time periods; and
whether the liquidator is alleging wrongdoing or merely seeking recovery.

Vague references to “overdrawn loan accounts”, “unlawful dividends” or “misuse of funds” may conceal multiple alternative claims, each with different evidential and legal thresholds. These may include alleged misfeasance or breach of duty, wrongful trading, transaction at an undervalue, preferences, or recovery of an overdrawn director’s loan account under the Insolvency Law.

If you are unsure what claim is actually being alleged, early clarification can make a significant difference to how negotiations unfold.

4. Avoid Admissions Disguised as Explanations

Directors often attempt to be helpful by explaining what happened in plain terms. However, explanations can quickly become admissions if not carefully framed.

For example, stating that payments were taken as “dividends” may later be relied upon as an admission that the payments were not salary or expense reimbursements, even where the accounting position is unclear. Similarly, accepting that funds were used “personally” without qualification can undermine otherwise valid defences.

Where the facts are uncertain or records are incomplete, it is usually safer to explain that the position requires verification, rather than making definitive statements. Where terminology or categorisation is uncertain, it is often preferable to state the position is under review and that you are taking professional advice, rather than adopting labels that may later be treated as admissions.

This is an area where a short piece of legal input can prevent long-term damage.

5. Evidence Matters More Than Narrative

Liquidators typically rely heavily on bank statements and accounting summaries. These rarely tell the full story. Negotiations are often more effective where directors can point to objective evidence rather than personal recollection.

Relevant evidence may include:

contemporaneous emails or correspondence;
contracts, invoices or timesheets;
expense receipts; and
reconstructed management accounts.

In many cases, engaging an accountant to review or reconstruct the accounts before negotiating can materially strengthen a director’s position. This allows negotiations to be grounded in evidence rather than assumptions. For example, a properly reconstructed loan account or ledger analysis can significantly alter the apparent level of any alleged overdrawn balance or misapplied funds.

6. Timing Is Critical

The timing of negotiations can be as important as their substance. Engaging too early may signal vulnerability or encourage inflated demands. Engaging too late may entrench positions and reduce flexibility.

In some cases, it is appropriate to respond to information requests first, while reserving position on liability and settlement. In others, early engagement may help to narrow issues and avoid escalation.

There is no single correct approach, but directors should be conscious that every communication can influence the liquidator’s strategy. Directors must, however, continue to comply with their statutory duty to co-operate with the liquidator and provide information and documents as required by law, while still reserving their legal position on liability and quantum.

7. Be Cautious with “Commercial” Offers

Liquidators may invite directors to make a “commercial” offer to resolve matters. While this can be a legitimate step, it carries risk if made without proper context.

A poorly judged offer can:

be treated as an admission of liability;
anchor negotiations at an unnecessarily high level; or
weaken later arguments if proceedings are issued.

Any offer should be clearly framed as without admission of liability and based on an informed assessment of risk, rather than fear of litigation. Where litigation is in prospect or on foot, formal “without prejudice” or “without prejudice save as to costs” and, where applicable, Part 36 offers can be powerful tools, but they should only be made after taking advice on the costs and evidential consequences.

8. Consider the Wider Consequences

Negotiations with a liquidator do not take place in isolation. Admissions or findings may have implications beyond the immediate claim, including:

director disqualification proceedings;
personal insolvency exposure; or
issues with lenders or insurers.

Directors should therefore consider the broader consequences before agreeing facts or figures, particularly where allegations of misconduct are raised. Adverse findings in liquidator proceedings may also influence any later application for a contribution order for wrongful trading or misfeasance, and can inform reports to regulators or professional or regulatory bodies where relevant.

9. Know When to Seek Professional Advice

Not every negotiation requires legal representation. However, advice should be considered where:

personal liability is alleged;
significant sums are claimed;
settlement discussions are underway; or
the director is unsure how to respond without prejudicing their position.

Advice should also be taken promptly where a letter before claim or draft particulars of claim have been received, or where court proceedings have been issued, so that responses can be aligned with the relevant pre-action protocols and procedural rules.

Early advice can help to structure negotiations, control risk and avoid missteps that are difficult to reverse.

Conclusion

Negotiating with a liquidator is often possible, but it requires care. The aim should not be to obstruct or delay, but to engage in a way that is measured, informed and proportionate.

By understanding the liquidator’s role, avoiding premature admissions, and grounding discussions in evidence rather than assumption, directors can negotiate without making matters worse — and, in many cases, achieve a more favourable outcome than first appears possible. Directors should comply with their duties to co-operate with the liquidator and should avoid any deliberate obstruction or withholding of documents or information.

The earlier you seek advice, the more options you are likely to have. Once you have made admissions or fixed your position in correspondence, it can be difficult to change course and the options tend to narrow.

For answers to some of the questions directors most often raise in negotiations with liquidators, see the Q&A section at the end of this article.

Please email wewillhelp@jonathanlea.net providing us with any relevant information or call us on 01444 708640.

We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner). After this call or meeting, we will then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information discussed.

Q&A: Common Director Concerns in Liquidator Negotiations

Can a liquidator rely on my own explanations even if the accounting records are incomplete or wrong?

Yes. Liquidators frequently rely on directors’ explanations where documentary evidence is incomplete, inconsistent or ambiguous. In practice, a director’s narrative may be used to fill evidential gaps and later relied upon as an admission, even if subsequent accounting analysis would have supported a different conclusion.

This is why informal explanations should be treated with the same care as formal witness evidence.

Does cooperating fully with a liquidator mean I should volunteer information that has not been requested?

Not necessarily. While directors have a statutory duty to cooperate, that duty does not require volunteering speculative explanations, legal characterisations or assumptions about liability. Providing more information than requested, particularly where facts are unclear, can unintentionally shape the liquidator’s case in a way that is difficult to reverse.

If a payment was taken with my accountant’s knowledge, does that protect me from liability?

Not automatically. Reliance on professional advice may be relevant, but it is not a complete defence. Liquidators often argue that directors remain responsible for understanding the company’s financial position and for ensuring payments were lawful at the time they were made. How such reliance is framed and evidenced can materially affect whether it assists or undermines a defence.

Can a liquidator change the legal basis of their claim during negotiations?

Yes. It is common for liquidators to advance alternative or evolving legal theories as negotiations progress, particularly where initial correspondence has elicited helpful admissions or narrowed factual disputes. What begins as a loan account recovery may later be reframed as misfeasance, breach of duty or an unlawful dividend claim, depending on how discussions develop.

Is an overdrawn director’s loan account always recoverable in full?

No. The apparent balance shown in accounting records is often only a starting point. Proper analysis may reveal re-classifiable payments, set-offs, remuneration adjustments or errors that materially reduce or eliminate the balance. Negotiations conducted before such analysis risk anchoring discussions to an inflated figure.

Can a “without prejudice” discussion still damage my position later?

Potentially, yes. While without prejudice communications are generally inadmissible on liability, they may still influence a liquidator’s strategy, expectations and approach to litigation. In some circumstances, factual admissions may also fall outside the protection. Without prejudice should not be treated as risk-free.

If I make a commercial settlement offer, can that be used against me if negotiations fail?

Sometimes. An offer may influence how a court views reasonableness, costs or credibility, particularly if it appears inconsistent with later arguments. Poorly framed offers can also be treated as implicit acknowledgements of exposure. This is why the structure, timing and wording of any offer matter as much as the amount.

Could agreeing figures with a liquidator affect director disqualification proceedings later?

Yes. Agreed facts or admissions in liquidation negotiations may later be relied upon in disqualification proceedings, contribution applications or regulatory reports. What feels like a purely financial settlement can therefore have wider professional and personal consequences.

If other directors are also involved, should we respond jointly or separately?

It depends. While joint responses can appear efficient, they may mask differing levels of knowledge, involvement or exposure. In some cases, a unified response can unintentionally bind one director to another’s admissions or assumptions. Independent advice is often critical where roles or conduct diverged.

At what point is it “too late” to improve my position?

When key facts have already been conceded. Once admissions are made or a narrative is fixed in correspondence, even strong legal arguments may carry less weight. Early intervention often preserves options that later advice cannot recreate.

* VAT is charged at 20%

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.