In United Kingdom and United States law and business, liquidation is the process by which a company (or part of a company) is brought to an end, and the assets and property of the company are redistributed.
Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation.
The decision to liquidate is made by a board resolution, but instigated by the director(s).
If a limited company’s liabilities outweigh its assets, or the company cannot pay its bills when they fall due, the company becomes insolvent.
Voluntary liquidation begins when the company passes the resolution, and the company will generally cease to carry on business at that time (if it has not done so already).
A creditors’ voluntary liquidation (CVL) is a process designed to allow an insolvent company to close voluntarily.
The court may appoint an official receiver, and one or more liquidators, and has general powers to enable rights and liabilities of claimants and contributories to be settled.
If the company is solvent, and the members have made a statutory declaration of solvency, the liquidation will proceed as a members' voluntary winding-up.
The parties who are entitled by law to petition for the compulsory liquidation of a company vary from jurisdiction to jurisdiction, but generally, a petition may be lodged with the court for the compulsory liquidation of a company by: The grounds upon which one can apply for a compulsory liquidation also vary between jurisdictions, but the normal grounds to enable an application to the court for an order to compulsorily wind-up the company are: A "just and equitable" winding-up enables the grounds to subject the strict legal rights of the shareholders to equitable considerations.
It can take account of personal relationships of mutual trust and confidence in small parties, particularly, for example, where there is a breach of an understanding that all of the members may participate in the business, Upon hearing the application, the court may either dismiss the petition, or make the order for winding-up.
Separate meetings of creditors and contributories may decide to nominate a person for the appointment of liquidator and possibly of supervisory liquidation committee.
Voluntary liquidation occurs when the members of a company resolve to voluntarily wind up its affairs and dissolve.