Insolvent Liquidation.

What is insolvent liquidation?

Insolvent liquidation is the process by which an insolvent company is professionally and legally closed down. The primary goal of any insolvent liquidation is to sell all company assets and distribute the proceeds to creditors and pay associated fees.

There are two main types of insolvent liquidation, one is initiated by company directors and shareholders known as a Creditors’ Voluntary Liquidation (CVL). The other is forced upon your company by the Court and is more often than not initiated by an unpaid company creditor.

Creditors Voluntary Liquidation

Creditors’ Voluntary Liquidation is a type of insolvent liquidation that occurs when you and other company directors and shareholders recognise that the company can no longer continue trading due to its financial situation. By opting for a CVL you can take control of the situation and see that your company affairs are properly wound up.

Compulsory liquidation

Insolvent liquidation can also come in the form of Compulsory liquidation. This type of liquidation is typically at the request of an unpaid creditor. They will submit a winding-up petition to the Courts who will decide if a winding-up petition is to be served forcing your company into liquidation.

Implications of insolvent liquidation for stakeholders.

Directors

Insolvent liquidation signals the end of your company’s trading, which can be a challenging time for you and other shareholders. A CVL can demonstrate a proactive management of the situation as you have initiated the process yourself. By doing so you have the ability to potentially mitigate any reputational damage. However, during a CVL investigations will be carried out into the running of the company up to and during the insolvency which may see you face scrutiny over your management of company finances.

Creditors

Creditors are primarily concerned with recovering as much of the owed money as possible. With a CVL they can have a say in the choice of liquidator and be assured that their interests are being looked after professionally.

Employees

Insolvent liquidation typically results in job losses for employees, as your company can no longer operate. Employees may be able to claim unpaid wages from the government.

Shareholders

As the primary goal for insolvent liquidation is to pay creditors it is unlikely there will be any leftover funds for shareholders to recover their investments.

What to do about an insolvent company.

If your company is heading into insolvency or is already insolvent, the most sensible course of action is to seek professional advice regarding your situation and possible options.

The Liquidation Centre can offer you guidance and provide insolvency advice on your current company financial health with our free no-obligation financial health check.

Don’t wait until a creditor forces you into liquidation, take action today.