Company liquidation can take one of three forms depending on the circumstances of the business. This may be shareholders realising their investment in a solvent business or creditors or director applying to wind up an insolvent company. Either way it is important to prepare for these scenarios.
Creditors Voluntary Liquidation
If the directors and/or shareholders decide that a business is no longer viable and cannot continue to trade, then they can pass a resolution to place the company into a Creditors Voluntary Liquidation.
A creditors meeting is subsequently held following which an orderly realisation of available assets will occur.
If sufficient funds are realised creditors claims are agreed and a distribution of the available funds will take place.
There are cases where directors or shareholders cannot agree to place the company into voluntary liquidation.
Compulsory liquidation occurs when one or more of the company’s creditors decide to pursue their demands for payment via a winding up petition lodged at court. If their petition is successful, the business will be subject to a winding up order and will cease to trade.
Members Voluntary Liquidation
Unlike the other forms of liquidation, Members Voluntary Liquidation can occur when a company is solvent and has sufficient assets to pay all outstanding debts in full.
This process is suitable when shareholders decide it is time for the business to cease to trade, possibly as a result of retirement, or there is a Group reorganisation and it is seen as commercially viable for a company within the Group to cease to trade. A Members Voluntary Liquidation must always result in a payment in full to creditors.
Company liquidation can be a complex process requiring detailed advice and guidance.