Liquidation is an official insolvency process, where the liquidator gets hired to wind up the doings of limited companies. There are many reasons why businesses enter into liquidation. It is instigated by a creditor or company directors.
Insolvent liquidation types
- Compulsory liquidation happens when a business is unable to pay the debts and creditor/s take legal action to get their owed money.
- Voluntary liquidations occur under similar conditions but it is the directors that determine to go into liquidation before they get forced to do by their creditors.
There are two kinds of voluntary liquidation – CVLs [creditor’s voluntary liquidations] and MVLs [member’s voluntary liquidations]
CVL is a volunteered process, where the directors admit that business is not sustainable but insolvent. There are several viable reasons to wind up the company.
- Business is small
- Insufficient cashflow
- No assets
- Voluntary administration is not viable
- Trading at loss
- Avoid creditors demand to pay
- Protection against personal liability
- Move to a fresh business
CVL liquidation process
The creditors meet and through voting CVL decision is taken. Another way is where the shareholder of the company decides to liquidate. A liquidator gets appointed as soon as the shareholders and directors sign the resolution. The liquidator submits the needed documents with the commission and other government entities.
Liquidator investigates and reports to the creditors about your business affairs, even its failure. The assets get sold and creditors get paid based on their priorities. Ultimately, the liquidator submits applicable documents with the commission and a request is made for deregistering the business.
MVLs are applied as an exit plan for a solvent company, whose productive life has come to an end. The shareholders are eager to extract their investment profits. The directors are about to retire or are seeking to windup the existing business for some other reasons.
MVL liquidation process
The company directors declare that the debts of the company can be paid and the company will still be solvent. A formal declaration has to be lodged with the commission, after which the directors call a meeting with all the members.
A liquidator is appointed to start the liquidation process, while the director’s job is to give relevant company records and other information. The assets if any is realized and outstanding tax affairs get managed. The outstanding creditors get paid off and the remaining cash gets distributed among the members. A final member’s meeting gets organized.
Insolvency Experts help to handle the stress of an insolvent company. The powers of company directors get suspended instantly. The role of liquidator includes –
- Taking control and selling assets
- Handle every creditor’s inquiries
- Investigate company affairs
- Review legal actions associated with the insolvent company
- Report to the commission and even the creditors about problems identified in the liquidation process
Why is voluntary liquidation a good option?
Insolvent companies, who are unable to clear their debts, can opt for voluntary liquidation because –
- Ends concerns and stress due to consistent calls from creditors.
- Protects directors from insolvent trading.
- The creditor’s attention gets focused on the liquidator instead of the directors.
- Protects directors from unpaid tax liabilities.
Liquidation is a traumatic experience, so consult a liquidation service provider.