Liquidation is the process whereby the Official Receiver or an insolvency practitioner formally takes control of a company in order to realise and distribute its assets to its creditors to satisfy the debts owed. Following this realisation and distribution, the company will be dissolved.

A company can enter into liquidation in a variety of different ways:

1. Compulsory liquidation – this is a court driven route where a relevant party (usually a company’s creditors or the company itself) applies to the court to order the company’s liquidation.
2. Members’ voluntary liquidation – this is an out-of-court route where the shareholders of a solvent company resolve to place the company into liquidation and pay the company’s debts to its creditors in full.
3. Creditors’ voluntary liquidation – this is an out-of-court route where the shareholders of a company resolve to place the company into liquidation and the directors cannot confirm the company’s solvency. Certain creditors of the company may be able to appoint administrators before the company is placed into creditors’ voluntary liquidation, but if this does not occur, the creditors are still entitled to choose the liquidator to be appointed and be regularly updated of the liquidation process.

What type of liquidation is appropriate for a company, and if liquidation is appropriate at all for a company, will depend on the particular circumstances of the situation. A variety of factors will need to be taken into account, including the cost of the relevant insolvency procedure and the company’s general solvency.

If you are looking to place a company into liquidation, advice should be sought from either a solicitor or an insolvency practitioner. Edward Beedham specialises in the legal and procedural aspects of corporate insolvency, including liquidations. If you require advice on corporate insolvency, please contact Edward Beedham at edward.beedham@herrington-carmichael.com or on 01276 686 222.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.