Define: Liquidation

Liquidation is the process of winding up a company’s affairs and distributing its assets to creditors and shareholders.

A company may go into liquidation if it is insolvent and unable to pay its debts, or if its shareholders vote to wind up the company.

Voluntary liquidation is initiated by the company’s shareholders, while compulsory liquidation is initiated by a court order in response to a creditor’s petition.

A liquidator is appointed to oversee the liquidation process, including selling the company’s assets and distributing the proceeds to creditors and shareholders.

Employees may be made redundant during liquidation, and their outstanding wages and entitlements are treated as priority claims in the liquidation process.

In some cases, a company may be able to enter into a company voluntary arrangement (CVA) or administration to avoid liquidation and continue trading.

The company’s debts are paid off in a specific order of priority, with secured creditors being paid first, followed by preferential creditors, and then unsecured creditors.

Directors may be held personally liable for the company’s debts if they have engaged in wrongful trading or fraudulent activities leading up to the liquidation.

The length of the liquidation process can vary depending on the complexity of the company’s affairs, but it typically takes several months to complete.

Shareholders are typically the last to receive any proceeds from the liquidation, after all creditors have been paid. In many cases, shareholders may not receive any proceeds at all.