Liquidation


Liquidation is the dissolution of a company, whereby its assets are realised and distributed to its creditors in satisfaction of any debts that they are owed.

At the end of the process, the company no longer exists and is dissolved.

If you have any further questions in respect of liquidation, or if you think liquidation is an appropriate process for you and your company, please contact Angus Ashman, Partner and Head of Dispute Resolution.

How do I put a company into liquidation?

A company can enter liquidation in one of two ways:

1. By compulsory liquidation; or

2. By voluntary liquidation.

What is compulsory liquidation?

Compulsory liquidation is when a winding up petition is presented to the court and served on the company.

A petition can be made by the company itself, its directors or any creditor. A company can be placed into compulsory liquidation for a number of reasons.

This includes:

1. Its inability to pay its debts;

2. It being just and equitable to do so; or

3. The passing of a special resolution.

The most common ground is inability to pay its debts. In order to ascertain whether a company is unable to pay its debts, the Insolvency Act 1986 looks at the company’s balance sheets and cash flow.

The company’s failure to comply with the statutory demand, which is a written demand for payment submitted in accordance with the law, will amount to inability to pay its debts.

Once a petition has been presented, the court will schedule a hearing date and the petitioner, who is the person making the petition, must, for example, serve and advertise the petition in the London Gazette.

At the hearing, the court has the discretion to make a winding up order, or to dismiss or adjourn the petition.

What is voluntary liquidation?

Voluntary liquidation can occur in two ways:

1. Creditors’ voluntary liquidation (CVL); or

2. Members’ voluntary liquidation (MVL).

CVL usually occurs when the directors of a company realise that its liabilities exceed its assets.

It requires the company’s shareholders to pass a special resolution of at least 75% to wind up the company.

On the other hand, MVL requires the directors of a company to give a statutory declaration of solvency (i.e. a statement under oath that the company’s assets outweigh its liabilities) and a special resolution of 75% or more must be passed by its shareholders.

Once a company is in liquidation, what can the liquidator do?

The liquidator is authorised to collect in, realise and distribute the assets of a company to its creditors.

The liquidator is entitled to do all things that may be necessary to do so, and this includes taking action against directors and former directors of a company.

Can the liquidator come after me personally?

The liquidator is authorised to collect in, realise and distribute the assets of a company to its creditors.

The liquidator is entitled to do all things that may be necessary to do so, and this includes taking action against directors and former directors of a company.

What next?

If you have any further questions in respect of liquidation, or if you think liquidation is an appropriate process for you and your company, please contact Angus Ashman, Partner and Head of Dispute Resolution.