Liquidation

A company may be liquidated, or wound up, either because its shareholders want it to be liquidated, or because a court orders it to be liquidated. The most likely reason for a court to order a company to be liquidated (a compulsory liquidation) is that it failed to pay its creditors.

Even when a company is wound up by its shareholders (a voluntary liquidation), it may not have enough money to pay its creditors. If a company is insolvent the insolvency becomes a creditors voluntary liquidation, rather than a members voluntary liquidation.

A members voluntary liquidation may be turned into a creditors voluntary liquidation if the liquidator decides that the company is, in fact, insolvent.

Liquidation is managed by a liquidator who will first pay creditors, and then distribute any remaining money to shareholders.

Rather than going straight into liquidation, an insolvent company may first be put into administration. This allows it to continue as a going concern for longer, avoiding immediate liquidation, preserving the value of the business. This means that there is a realistic chance of maximising the price received for any parts of the business that can be sold as a going concern. In the meatime it is run by an administrator appointed by a court, certain creditors, or the company itself.

Creditors may also appoint a receiver. The task of a receiver is to manage and sell asssets in order to pay off debts.

A liquidator, receiver or administrator must be either the official receiver, or an authorised insolvency practitioner: usually an accountant, solicitor, or a member of the Insolvency Practitioners' Association

Copyright Graeme Pietersz © 2005-2016