Starting The Liquidation Process

Starting The Liquidation Process

The process of liquidation can be either voluntary or compulsory and undertaken as follows:

Creditors Voluntary Liquidation

If the directors and/or shareholders decide that a business is no longer viable or in a position to continue trade, then they can decide to 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 subsequently realised creditors’ claims are agreed and a distribution of the available funds will take place.

Compulsory Liquidation

Compulsory liquidation occurs when one 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

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.

Liquidation is not an option to be taken lightly. You will need to seek advice on what is right for you and your business. In the event of a creditor voluntary liquidation or member’s liquidation the process will begin with appointing an insolvency practitioner.

The job of a liquidator can include the following:

  • Protect the interests of creditors
  • Protect and realise assets
  • Recover money owed to the company
  • Investigate and report on the conduct of the directors
  • Pay creditors and shareholders as appropriate
  • Formally close a company