Liquidation is the formal process a corporate entity will enter into when it’s ready to seek an orderly winding up of its affairs.
As soon as a liquidator’s appointed (an authorised Insolvency Practitioner), they’ll essentially take control of the business to:
• Organise the realisation of assets
• Investigate the affairs of the company prior to winding up (where the entity’s insolvent)
• Settle any legal disputes and/or any outstanding contracts
• Keep creditors informed and involve them where necessary
• Deal with the agreement of creditor claims and distribution of any surplus funds or assets
• Remove the company from the companies register
Stakeholders in liquidation typically include:
• The Board of Directors
• The company’s shareholders
• Bank and lenders
Creditors’ Voluntary Liquidation (CVL) vs Compulsory Liquidation
If a company’s insolvent (unable to pay its debts as and when they fall due), then the directors can voluntarily commence an orderly winding up via Creditors’ Voluntary Liquidation (CVL).
Alternatively, a company’s creditor (someone owed money) can start legal action to include petitioning to wind up the company. This is known as compulsory liquidation.
There’s also Members’ Voluntary Liquidation (MVL)…
With MVL, shareholders may be looking for a tax-efficient way to extract capital when the solvent company’s reached the end of its natural lifecycle and requires an orderly winding up.