How Voluntary Liquidation Differs From Compulsory Liquidation

When company is insolvent, it may enter a Creditors Voluntary Liquidation

, but in some cases insolvent companies may have no choice but to liquidate as a result of being given a winding up order by a court. Compulsory liquidation can be an extremely difficult process for companies.

With voluntary liquidation, company directors will make the decision to liquidate the company, with the approval of the companys shareholders. Depending on the companys solvency, a Members Voluntary Liquidation (MVL) or a Creditors Voluntary Liquidation (CVL) will take place. A liquidator will be appointed for both procedures.

The voluntary liquidation process means that the company directors can choose, along with approval from shareholders, to liquidate the company. When a court presents the company with a winding up order, the company has no choice but to liquidate. With a Members Voluntary Liquidation, a company will declare that it is solvent and a liquidator will value and sell the companys assets in order 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 companys assets will be sold and the creditors will be paid off, allowing the company directors to move on.

A compulsory liquidation takes place when a creditor petitions to a court in order to wind up the company. Company directors can also petition to courts, though this must be done by a group of directors and not just one director. The company directors will receive the winding up order in court. Companies are able to make an appeal after a winding up order has been presented, but this must be done within a certain time period. Petitioning to the court can prove to be costly for creditors and company directors, so it always a good idea for companies to consider alternatives.

by: Ashlyn Henry

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