Liquidation is the process by which the assets of a company are collected and realised by a liquidator. The resulting proceeds are applied in discharging the debts and liabilities of the company by the liquidator. Any balance which remains after paying the costs and expenses of winding up is distributed among the members according to their rights and interests, or otherwise dealt with as the constitution of the company directs.

The three types of liquidation are:

  • court ordered winding up;
  • creditors’ voluntary liquidation; and
  • members’ voluntary winding up.

A members voluntary winding up occurs where a company is still solvent and the members of the company (shareholders) have decided that they no longer wish the company to continue operating.

A creditor’s voluntary liquidation occurs where a company is insolvent or is likely to become insolvent and the members decide (for whatever reason) that they do not wish to attempt to save the company through the appointment of an administrator, and should be placed directly into liquidation.

A court ordered liquidation starts as a result of a court order pursuant to an application to the court, usually by a creditor of the company. The court can order that a company be placed into liquidation for a variety of reasons apart from insolvency (for example, where the directors or shareholders of a company are unable to cooperate in the management of the company).

Where a company is wound up pursuant to a creditor’s voluntary liquidation or court ordered liquidation an external insolvency practitioner referred to as a ‘liquidator’ will be appointed. The primary role of the liquidator is to take control of the company on behalf of the creditors, collect and sell the company’s assets, distribute the proceeds among creditors (with any surplus going to shareholders) and then deregister the company.

If you require legal advice in relation to any aspect of liquidations, please contact us to arrange a meeting so that we may consider your specific circumstances.

The above information in relation to liquidations is provided as general information only and should not be relied upon as legal advice. The accuracy of this information may have changed from the date when it was published.