Liquidations

Liquidation is the formal winding up of a company’s affairs. At the conclusion of such a procedure the company will be dissolved and be removed from the companies register.

There are two forms of insolvent liquidation. A compulsory liquidation when it is instituted by order of court or a creditors voluntary liquidation when it is commenced by resolution of the shareholders.

There is one form of solvent voluntary liquidation. This procedure is used when all the company’s liabilities will be paid in full and its conduct is controlled by the shareholders.

Compulsory Liquidation

Compulsory liquidation (or compulsory winding up) is usually commenced when a creditor petitions the court for a winding-up order as the company is unable to pay its debts. A winding-up petition may also be presented by the Secretary or State for Trade and Industry on the grounds of public interest.

In this type of liquidation most of the functions are performed by the Official Receiver; who is an officer of the court and works for The Insolvency Service.

Creditors’ Voluntary Liquidation

Creditors’ voluntary liquidation is the liquidation procedure mostly commonly used. The directors will request this procedure if the company is insolvent. The resolution to wind the company up is made by the shareholders but the creditors effectively control the procedure and can decide the appointment of the liquidator. This is the most common way for directors and shareholders to deal voluntarily with their company’s insolvency.

Members’ Voluntary Liquidation (solvent companies)

A solvent liquidation is called a members’ voluntary liquidation. It is procedure used for the purposes or re-organisation or distribution of capital to the shareholders. The company’s assets must be sufficient to settle all its debts with twelve months.