Liquidation is usually the legal closing down of a business which may be solvent or insolvent. Liquidation may occur following a receivership or administration.
Alternatively, the company's directors or shareholders may recommend that the company be put directly into liquidation via either a Creditors Voluntary Liquidation (CVL) or a Members Voluntary Liquidation (MVL) or a Court can make a winding-up order for a compulsory liquidation on the petition of a creditor or the company itself.
Creditors Voluntary Liquidation (CVL)
This occurs where the shareholders, usually at the directors' request, decide to put a company into liquidation because it is insolvent. Either the company cannot pay its debts as they fall due or it has more liabilities than assets.
The purpose of the liquidation is to appoint a responsible person who has a duty to collect the company's assets and distribute them to its creditors in accordance with the law. That person is the liquidator who must be a licensed insolvency practitioner.
Members Voluntary Liquidation (MVL)
A solvent liquidation is known as a Members' Voluntary Liquidation in which a liquidator is appointed by the shareholders and the company's assets are sufficient to settle all its debts within twelve months.
MVLs may be used for the purposes of reorganisation, or in the case of owner managed businesses to enable the shareholders to realise their interest in the company.
The company's tax position can however be critical and our experts can advise you on the alternatives of liquidation or dissolution and any crucial timing decisions.
A compulsory liquidation is usually where a creditor has petitioned the Court for the winding up of the company. The official receiver becomes the liquidator but normally appoints an insolvency practitioner to carry out the liquidation. This is also known as a 'compulsory winding up'.