Company Liquidation - What Is Liquidation And When Should It Be Used?

In the simplest terms, liquidation is the dissolution of a company

. Its assets are liquidated (sold off) and distributed to its debtors.

Usually a company is not going to liquidate when it is in a healthy financial situation, though solvent companies do choose to liquidate under certain circumstances.

Company liquidation takes two broad forms. The first is called Voluntary Liquidation. In this instance, either the company directors or the shareholders make a collective decision to dissolve a company that they feel is no longer viable. Voluntary Liquidation cannot be entered into unilaterally. If a board member or members wish to dissolve the company, they must first get a majority agreement before they can initiate proceedings. If the shareholders wish to liquidate, they must collectively do so before action can be taken.

Voluntary company liquidation can either be Members Voluntary Liquidation (MVL) if the company is solvent or Creditors Voluntary Liquidation (CVL) if the company is no longer solvent. MVL is sought in order to bring about an orderly termination of business. It may be initiated if the shareholders feel the board of directors is no longer acting in the companys best interests, because the products or services the company provides are losing market share or for a variety of other reasons. CVL is sought as a best solution to avoid the other type of Company Liquidation Compulsory Liquidation.

Compulsory Liquidation proceedings are initiated by creditors whose outstanding debts have not been paid. If no response to a statutory order to pay has been received, creditors can seek a court order demanding that the company be dissolved. The creditor who initiates the proceedings bears the burden of court costs, but becomes the first and principle beneficiary after due process has finished.

Creditors seeking company liquidation are asking that the assets and operation of a company be put in the hands of a court appointed liquidator and out of the hands of a company they feel is being uncooperative with their efforts to secure payment of debts. In many cases, just the threat of liquidation is enough for the company to reconsider and settle its debt.

Provisional liquidation is another type of company liquidation that seeks to preserve company assets that may be at risk. In this case, a liquidator will be employed to preserve the financial position of the company while the petition to liquidate is being considered by the court.

by: Ashlyn Henry

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