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Insolvency – Liquidation
Liquidation is the procedure through which the assets of a company are realised and distributed to creditors to satisfy the company’s debts in accordance with the Insolvency Act 1986. At the end of this procedure the company is dissolved and no longer exists. The process is often referred to as winding up a company.
Liquidation can happen in isolation, for example if there is no prospect of selling the company, but it can also follow as an exit route for a company in administration. In 2018 over 15,000 companies were liquidated.
There are two types of liquidation; voluntary liquidation and compulsory liquidation.
Voluntary Liquidation
Voluntary liquidation can be achieved in two ways:
Members’ voluntary liquidation – this option can be used if a company is able to pay its debts but the management have decided to wind up the company, for example on retirement.
Creditors’ voluntary liquidation – if a company is unable to pay its debts then a creditors’ voluntary liquidation is the process to follow to wind up the company.
Compulsory liquidation
A compulsory liquidation comes about as a result of the court granting an order to wind up the company, most likely on the petition by HM Revenue & Customs of one of the company’s other creditors.
The Role of the Liquidator
The liquidator has wide ranging powers including to collect and realise assets, to disclaim onerous property, to pursue or defend legal proceedings and to challenge antecedent transactions.
What to do next?
If you think your company is in danger of being liquidated, has received a winding up petition or if you are considering exit strategies that include liquidation, it is important to seek professional advice.
We act for liquidators, creditors and companies in relation to the liquidation process. We can offer practical and commercial advice as well as giving you expert advice on your legal position.