The event in which a limited company is taken to a close is called liquidation. The delegated liquidator has the responsibility of liquidating the assets of the company and whatever is realized out of that is redistributed to creditors in order of priority. The last stage of liquidation of a company is called a dissolution where it will struck-off the registrar. The decision to liquidate a company can be done in two ways: voluntary and compulsory.
Among the different types of liquidation, compulsory liquidation is perhaps the most stressful because it comes from the creditor that wants to close the company forcefully through a court order. This procedure is instigated with a winding-up order and is usually handled by the liquidator or insolvency practitioner. It has been utilized as a last resort by unhappy creditors over missed payments by the company. On the other hand, the voluntary liquidation of the company, which is decided upon by the directors and shareholders themselves, can be done in two different ways as explained below.
Creditors’ Voluntary Liquidation by Insolvent Companies
This type of company liquidation is initiated by a resolution issued by the shareholders which result in the dissolution of an insolvent company. It typically involves the redistribution of the assets of the company to the creditors. Normally, this option is considered as a safe exit of the directors from a stressful situation and can be the best option for them to move on without having to worry about the company’s debts causing a heavy burden on their shoulders.
Members’ Voluntary Liquidation by Solvent Companies
Compared to the voluntary liquidation of company, this option is initiated by the members of the company and is usually used as part of the business exit plan as well as to address taxation matters. This is often chosen when the company is heading towards its natural end or the directors want to extract the value of assets and cash from the business. However, for this liquidation to materialize, the directors have to secure a declaration indicating that the company has no remaining obligations to creditors.
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