What is the difference between voluntary and compulsory liquidation?
Posted 14th June 2011 | 0 comments
A company that is facing insurmountable debt and financial strain may find itself facing either a compulsory or voluntary liquidation, depending on their individual circumstances. In some cases, a solvent company will have no choice but to enter liquidation as a result of a court order, or they may enter the process voluntarily.
A voluntary liquidation requires the directors of a business (along with the permission of the shareholders) to make a formal decision to liquidate the company and distribute the assets amongst creditors. Depending on whether or not the company is solvent, they will enter into either an MVL (Members Voluntary Liquidation) or CVL (Creditors Voluntary Liquidation). A liquidator will be appointed for both procedures. With an MVL, the company will declare itself as solvent, and the company assets are then valued and sold to pay creditors. A CVL is also used voluntarily, but only when a company is insolvent, involving an investigation by the liquidator.
A compulsory liquidation occurs when a creditor petitions the courts and the court decides to issue the indebted company with a winding up order. The directors are then able to make an appeal within a certain time period. This approach can prove costly for creditors and directors alike, so it is recommended that all alternatives are considered before being led into a compulsory liquidation.
If you want to know more about voluntary and compulsory liquidation, contact us on 0845 468 2395 or visit our contact page for more information.
