Voluntary Liquidation

There are two types of voluntary liquidation, Members' Voluntary Liquidation and Creditors' Voluntary Liquidation.

Members' Voluntary Liquidation (MVL)

A MVL is a solvent liquidation where the company has sufficient assets in order to pay all of its liabilities within the next 12 months. The company may have achieved the purpose for which it was formed, or its shareholders may wish to realise their investment the company, on retirement or dispute. MVL's can be a very tax efficient method of bringing a company's trading activities to conclusion.

The procedure for an MVL is fairly straightforward. The directors of the company swear a Statutory Declaration of Solvency to the effect that the company is able to pay all its liabilities in full over the forthcoming 12 months and then they convene a meeting of the shareholders in order to pass a winding-up resolution and appoint a Liquidator.

The duly appointed Liquidator then realises the company's assets, pays all creditors together with statutory interest and returns any surplus money to shareholders.

Creditors, Voluntary Liquidation (CVL)

A CVL is an insolvent liquidation where the company's assets are insufficient to pay creditors in full. Again the procedure is fairly straightforward. The directors who have recognised the company's insolvency, convene meetings of shareholders and creditors. At their meeting the shareholders pass a resolution to wind-up the company and appoint a Liquidator. At the creditors meeting, creditors receive a report on the trading history of the company, may ask questions of the company's officers who are present, and may put forward an alternative nomination for Liquidator which is then subject to a vote.

Unlike in an MVL, in a CVL the liquidator has a duty to submit a report on the conduct of the directors of the company to the DTI.

Compulsory Liquidation

Compulsory Liquidation is instigated by the Court, usually on the petition of a creditor or a shareholder. There are grounds upon which the court can make a winding up order, the most usual being that the company is insolvent.

Upon the making of the winding-up order, the Official Receiver becomes Liquidator of the company and has a duty to investigate the trading of the company and submit a report to the DTI.

If appropriate, the Official Receiver will seek to appoint an Insolvency Practitioner as Liquidator in his place, either at the meeting of creditors or upon application to the Secretary of State. The Liquidators duty is to realise a company's assets and distribute the proceeds to creditors.