Corporate Insolvency

About Liquidation

As a director of a business in distress, you have a legal responsibility to ensure the company is not trading whilst insolvent.

Obtaining early advice can help you clarify your current position and the available options. If the business cannot be saved, then the company will be liquidated.

What types of Liquidation are there?

  • Members´ voluntary liquidation (or members´ voluntary winding up) - this is when the shareholders of a company decide to put it into liquidation, and there are enough assets to pay all the debts of the company, i.e. the company is solvent.
  • Creditors´ voluntary liquidation (or creditors´ voluntary winding up) - this is when the directors and shareholders of a company decide to put the company into liquidation, but there are not enough assets to pay all the creditors, i.e. the company is insolvent.
  • Compulsory liquidation (or compulsory winding up) - this is when the court makes an order for the company to be wound up (a ´winding-up order´) on the petition of an appropriate person, most usually a creditor. If there is more than one director, all the directors must jointly present the winding-up petition - a single director cannot present a winding-up petition.

Creditors Voluntary Liquidation

This is the most common route for dealing with an insolvent company. In a creditor´s voluntary liquidation, the directors/shareholders decide to put the company into liquidation due to the fact it is insolvent. In doing this a licensed Insolvency Practitioner is appointed as the Liquidator of the company whose prime duty is to collect in the assets of the company and distribute them to the company´s creditors.

When is Creditors Voluntary Liquidation Appropriate?

Creditors´ voluntary liquidation will be appropriate where:-
  • The company is insolvent (can´t pay its debts as and when they fall due)
  • The company´s business is no longer viable
  • The directors are not prepared to continue to trade the company

What are the alternatives to Liquidation?

  • Informal arrangement - the company could consider writing to all its creditors to see if a mutually acceptable agreement can be reached. It is advisable to include a timetable of when payments will be made.
  • Company Voluntary Arrangement (CVA) - this is a formal version of the arrangement described above. The directors would need to apply to the court with the help of an authorised insolvency practitioner, who would supervise the arrangement and pay the creditors in line with the accepted proposals.
  • Administration - this is a procedure that gives the company some breathing space from any action by creditors. The procedure is managed by an administrator, who must be an authorised insolvency practitioner.
Company Voluntary Arrangements | Administration Orders

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