In the simplest terms, liquidation may be the dissolution of an organization. Its assets are liquidated (sold off) and distributed to its debtors. Usually a company is not going to liquidate when it’s in a healthy finances, though solvent companies do elect to liquidate under certain circumstances.
Company liquidation takes two broad forms. The first is called Voluntary Liquidation. In this situation, either the business directors or the shareholders create a collective decision to dissolve a company that they feel is no longer viable. Voluntary Liquidation can’t be entered into unilaterally. If a board member or members wish to dissolve the company, they must first get a majority agreement before they can initiate proceedings. If dissolution of a company wish to liquidate, they must collectively achieve this before action can be taken.
Voluntary company liquidation can either be Members Voluntary Liquidation (MVL) if the company is solvent or Creditors Voluntary Liquidation (CVL) if the business is not any longer solvent. MVL is sought to be able to bring about an orderly termination of business. It may be initiated if the shareholders have the board of directors is not any longer acting in the company’s best interests, because the products or services the company provides are losing market share or for a variety of other reasons. CVL is sought as a best solution to avoid another kind of Company Liquidation – Compulsory Liquidation.
Compulsory Liquidation proceedings are initiated by creditors whose outstanding debts have not been paid. If no reaction to a statutory order to cover has been received, creditors can seek a court order demanding that the business be dissolved. The creditor who initiates the proceedings bears the responsibility of court costs, but becomes the initial and principle beneficiary after due process has finished.
Creditors seeking company liquidation are asking that the assets and operation of an organization be put in the hands of a court appointed liquidator and out from the hands of an organization they feel is being uncooperative making use of their efforts to secure payment of debts. Oftentimes, just the risk of liquidation is enough for the business to reconsider and settle its debt.
Provisional liquidation is a different type of company liquidation that seeks to preserve company assets that may be at risk. In cases like this, a liquidator will be employed to preserve the budget of the company while the petition to liquidate is being considered by the court.