Types of Liquidation

The term "liquidation" refers to the steps taken to dispose of or convert to cash all of a company's assets and obligations. The term "liquidation" is sometimes used interchangeably with "bankruptcy" and "under duress," although in fact, it is not always either of those things. On occasion, businesses will sell off a non-performing division to reinvest the proceeds into a more lucrative area. Liquidation of a business due to an unacceptable financial condition falls under two basic categories: voluntary and coercive.

Liquidation by Consent

The directors of a firm can initiate a richmond liquidation if they decide the company is no longer viable. Solvent or Member's Voluntary Liquidation is the process by which a corporation goes out of business if its assets are sufficient to pay off its debts. Insolvent or Creditors Voluntary Liquidation occurs when a company's assets are insufficient to pay off its debts. Typically, a firm will engage in this sort of legal action.

Insolvent The directors of a firm initiate voluntary proceedings by consulting with an insolvency professional who assists them in convening meetings with the company's shareholders and creditors. Resolutions designating the selected licensed insolvency professional as the company liquidator are passed at this meeting. The next thing to do is to call a meeting of the company's creditors so that they can find out what went wrong and, if they so want, suggest a different liquidator. Following this conference, the appointed liquidator will take complete management of the business and all of its assets.

Forcible Dissolution

When a creditor or director of a corporation obtains a court order, often known as a "winding-up order," compelling the company to cease operations, this begins the process of compulsory liquidation. If there is more than one director at the company, all of them must sign a petition asking the court for an injunction.

When a statutory demand for payment is not answered by query, payment, or dispute, creditors may seek a winding-up order from a court. If a statutory order is not responded to within 21 days, the creditor is entitled to receive the court order. If a creditor forces liquidation, he is responsible for all of the costs associated with it but will be paid before any other creditors. The winding-up hearing is held in a courtroom.

These are only high-level guidelines for both voluntary and mandatory liquidation processes, and should not be relied upon in any way. Professional advice should be sought out if winding-up actions are imminent.

How Voluntary Liquidation Differs From Compulsory Liquidation

Some insolvent businesses choose to dissolve voluntarily with the help of their creditors, while others have no choice but to comply with a court-issued "winding up" order. The process of compulsory liquidation can be quite challenging for businesses.

When a corporation goes into voluntary liquidation, its board of directors makes the call to dissolve itself, with the backing of its stockholders. A Members Voluntary Liquidation (MVL) or a Creditor Voluntary-Liquidation (CVL) may be initiated, depending on the financial health of the company. Both processes will involve the appointment of a liquidator.

If the board of directors of a company wants to dissolve it, they can do so through a procedure called voluntary liquidation, with the support of the shareholders. When a court issues a "winding up order," the only option for the corporation is to dissolve into liquidation. A member's Voluntary-Liquidation occurs when a corporation decides it is solvent and hires a liquidator to assess the value of its assets and sell them to pay off creditors. A Creditors Voluntary Liquidation involves an investigation of the company by the liquidator, after which regular meetings will be held with creditors. The directors of the company will be able to move on after the sale of the company's assets has paid off their creditors.

If a firm's creditors file a petition with the court, the company will be forced into liquidation. Company directors can also petition the courts, albeit this must be done by a group of directors and not just one director. The court will issue the winding-up order to the company's directors. Upon receipt of a winding-up order, companies have the right to file an appeal; however, they must do so within a specified amount of time. Creditors and directors of a firm might waste a lot of money by going to court, therefore they should always look into other options before resorting to that.