What is Liquidation?
Liquidation is the process by which a company is ‘wound up’. The process involves the redistribution of the assets and property held by the company to the company’s creditors. Liquidation is the path taken by businesses which have become insolvent – meaning that the company is unable to pay its debts as and when they fall due and owing. When a company is insolvent, a director is obligated to take steps to remedy the situation and/or appoint a liquidator.
A liquidator is a third party who oversees the process of liquidation and is statutorily required to act in the best interests of the creditors, directors and shareholders to ensure that all parties are treated fairly during the ‘winding up’. It is important to note that liquidation can be either voluntary or compulsory. In certain circumstances, it is advised that a director, aware of a company’s insolvency, should elect to commence the liquidation process voluntarily.
What is Voluntary Liquidation?
Voluntary liquidation occurs when the company’s directors resolve to place the company into liquidation. The motivation for the resolution to voluntarily commence liquidation, can be due to the company being insolvent or simply that the directors wish to bring the company to an end. Once the resolution is passed, the directors then have the opportunity to appoint a liquidator to adjudicate and oversee the liquidation process.
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