There are two types of liquidations – Compulsory (by the court) and Voluntary.
Liquidation ensures that the company’s affairs are closed down in an orderly manner.
Voluntary liquidation comprises of two distinct categories:
A Creditors Voluntary Liquidation (“CVL”) is more common and occurs when a business is insolvent and has no viability. Directors should consider this option if they want to avoid the risk of wrongful trading.
A Members Voluntary Liquidation (“MVL”) is appropriate when there are sufficient assets to cover all liabilities in full. An MVL involves the directors swearing a statement, known as a declaration of solvency, to say the company will be able to pay all its debts within a period not exceeding twelve months.
Compulsory liquidation is a court-directed method of winding up a company.
It is often the result of a creditor being unsuccessful in recovering their debts.
The court will issue a Winding Up Order if the company is unable to pay its debts because of one of the following:
- The value of total liabilities exceeds the value of total assets
- A statutory demand greater than £750 remains unpaid for 21 days
- The company has not satisfied a previous judgement
- The company has decided that it should be wound up by the Court
- That it is just and equitable to wind up the company
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