Liquidation

Liquidation, or winding up, is the process whereby a company’s affairs are taken out of control of the directors and put into the hands of a liquidator, who realizes the company’s assets, pays its debts and liabilities, and then returns any surplus to the members. Liquidation is appropriate when a company cannot continue as a going concern.

There are two methods of winding up a company, namely voluntary and compulsory liquidation. Voluntary liquidation occurs when the members of a company resolve to wind it up, and compulsory liquidation occurs when the court makes a winding-up order against a company. Voluntary winding up may be either members’ voluntary liquidation (‘MVL’), which occurs when the directors make a statutory declaration that in their opinion the company will be able to pay its debts in full within 12 months of the commencement of the winding up, or creditors’ voluntary liquidation (‘CVL’). Any voluntary liquidation in which no such statutory declaration has been made is a CVL. A Winding up that starts out as an MVL may be converted to a CVL if the liquidator forms the opinion that creditors will not be paid in full as anticipated.