What is Liquidation?

A company enters into liquidation by either action taken by the directors and shareholders or through a court process where a Winding Up Order is made. Where at the behest of the board and shareholders these process are referred to either as a Members Voluntary Liquidation (MVL) if a solvent liquidation or a Creditors Voluntary Liquidation (CVL) if insolvent.

A CVL is a procedure whereby the shareholders at the request of the directors places a company into Liquidation in order to facilitate an orderly wind up of the company’s affairs. The decision to initiate a CVL process is usually when the company has run out of cash, is unable to pay its debts on time and the directors believe the business is no longer viable. A CVL is designed to realise the assets of the company and distribute proceeds to creditors.

Key Points

  • It is important to clarify that it’s not just a short term cash flow problem as this can be rectified by securing more finance
  • The decision to appoint a Liquidator is passed by resolutions of the shareholders and ratified by creditors
  • The Liquidator takes control of the company’s affairs, realises the company’s assets and then distributes those proceeds to creditors

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