What is Liquidation?

Posted on by Recovery & Turnaround

Liquidation is a process in business in which a company’s assets are realised for the benefit of its creditors. The process is managed by a licensed Insolvency practitioner acting as a ‘Liquidator’.

Also referred to as winding-up, or dissolution, the process can be compulsory – known as ‘compulsory liquidation’, or voluntary; the process of shareholders’ liquidation. These two different types of insolvent liquidation differ in severity and, subsequently, the actions taken to amend the situations.

Compulsory liquidation

In general, a petition is made for the compulsory liquidation of a company by any of the following parties:

  • A creditor who can make a case for a prima facie case
  • Shareholders who may be required to contribute to the assets belonging to the company upon the act of liquidation
  • The company itself
  • The Secretary of State (or equivalent title)
  • The Official Receiver

Bubbles in water

Voluntary liquidation

This type of liquidation occurs when those members belonging to a company decide amongst themselves to voluntarily ‘wind-up’ their business and dissolve the company or parts of it. This occurs following the company passing the resolution, and following the liquidation process companies will tend to cease their existence.

For solvent companies, the liquidation can proceed as a voluntary winding-up by the members, requiring merely an general meeting to appoint the liquidator(s) – this is known as a members voluntary liquidation and is the rarest form of liquidation. If, however, the company is insolvent, the liquidation will proceed as voluntary but as a creditors’ voluntary winding-up petition. The creditors will meet and, following discussions with the directors about the company’s state of affairs, or even the appointment of a liquidation committee, the decision will be made and the process can proceed.

If a voluntary liquidation has occurred within a company, there is still a possibility for a compulsory liquidation order. However in this instance the petitioning contributory requires that the court is satisfied that this voluntary liquidation would prejudice the contributors.

Here at Recovery and Turnaround, we are dedicated to helping you and your business through difficulties, such as liquidation, in the most efficient and professional of manners. For more information on any of our services, or to arrange for assistance with your company’s issues, don’t hesitate to get in touch with our team of highly-trained professionals today. Our in-house business specialists will do everything in their power to provide your company with the assistance it needs at a great price. Simply book a free consultation or call us today, and let us lend our expert advice and do what we can to help.

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