Where the core business of an insolvent company cannot be preserved, a company is likely to be placed in Liquidation and its assets sold off. The proceeds of the sale are distributed to the company's creditors. Liquidation is almost always the end of the road for a company, and its name will eventually be removed from the Register of Companies.
The Liquidation of an insolvent company instigated by the directors is known as a Creditors' Voluntary Liquidation (CVL), and not by the creditors, as the name implies. Alternatively, the creditor's right of action is through a winding up petition presented to the Court; this is known as a Compulsory Liquidation.
For a company which is solvent and wants to close down winding up all outstanding business affairs by paying creditors off in full and making a distribution to shareholders, then a Members' Voluntary Liquidation (MVL) will be the most appropriate procedure.
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Creditors' Voluntary Liquidation (CVL)
Members' Voluntary Liquidation (MVL)
A company that is solvent (i.e. its assets are greater than its liabilities) can resolve to enter into a Members’ Voluntary Liquidation in order to wind up the affairs of the company. A meeting of the board of directors should be held to propose a Members’ Voluntary Liquidation and this should then be followed by a General Meeting to pass such a resolution
A Compulsory Liquidation is ordered by the court, following a petition by a creditor, the company itself, or a shareholder. The case is first referred to the Official Receiver (a civil servant and officer of the court), who decides whether the assets of the company are likely to cover administrative costs. If they are, the Official Receiver will call a creditor’s meeting to appoint a liquidator; if not, the case will be handled by the Official Receiver. In a Compulsory Liquidation, the conduct of the company's directors will be investigated as part of the procedure, by the Official Receiver.