Company Liquidation Types
Company Liquidation of an insolvent company has two types Creditors Voluntary Liquidation and Compulsory Liquidation.
Business continuity or business restart can only usually take place through Creditors Voluntary Liquidation. Such a restart is sometimes known as a phoenix company.
Company liquidation of a solvent company will use a Members Voluntary Liquidation.
Creditors Voluntary Liquidation (CVL)
A Creditors Voluntary Liquidation service is used to close an insolvent company. “Creditors Voluntary” has specific meaning but can be slightly misleading.
An Insolvent company is most regularly identified as one that cannot pay its creditors (those who it owes money to) as and when they are due for payment. Most often this position can be seen to be worsening from week to week and month to month.
“Creditors Voluntary” distinguishes the fact that the Creditor Voluntary Liquidation Procedure is started by the Directors of the company not the creditors (those who are owed money). This is perhaps in contrast to the fact that it is called “creditors voluntary” not a director’s voluntary. To be clear a Creditors Voluntary Liquidation procedure is started by the Directors of the company!
Members Voluntary Liquidation
A Members Voluntary Liquidation procedure is in contrast to a Creditors Voluntary Liquidation. To undertake a Members Voluntary Liquidation a company must not be insolvent.
The “Members Voluntary” description is more accurate than the “Creditors Voluntary” and reflects the fact the Members Voluntary Liquidation procedure is started by the Members of the company (the shareholders).
Be clear that there is no “voluntary” in either the title of style of this procedure.
Compulsory Liquidation refers to the fact the in by far the majority of cases the creditors (those who are owed money) of the company force the company in to Compulsory Liquidation. In many cases this is against the wish of the company directors.
A Compulsory Liquidation is distinct also in that it is the only style of liquidation that involves the Courts.