LIQUIDATION

Definition

Liquidation of a company takes place when it reaches the end of its useful or profitable life.

Members' Voluntary Liquidation is a solvent liquidation where all creditors are paid in full within a period of 12 months and the surplus is returned to the shareholders.

Where a company is insolvent the process of liquidation enables its affairs to be put into the hands of a licensed insolvency practitioner acting as liquidator of the company. The liquidator gathers in the assets of the company and, after the costs of the exercise, distributes them to the creditors in accordance with a statutory formula.

Insolvent liquidation can take place via two separate routes, namely

   •  creditors' voluntary liquidation (CVL);

   •  compulsory liquidation (CL)

In a CVL, it is the shareholders that place the company into liquidation and appoint a liquidator. At a subsequent meeting, creditors then vote as to their own choice of liquidator, which choice prevails in the event of a conflicting nomination.

Compulsory liquidation takes place following a petition to the court for a winding up of the company. The petition will usually be presented by a creditor often the Customs & Excise and/or Inland Revenue. Companies facing compulsory liquidation should visit ‘Life after a Petition' and proceed in accordance with the text.

Although liquidation will usually be the end of the road for any company, it is possible to reverse out of the process through the implementation of a company voluntary arrangement (CVA)