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Compulsory vs. Voluntary Liquidation

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Whilst there are some variations in the liquidation procedure between compulsory and voluntary liquidation, the difference is most apparent in terms of bankruptcy. Compulsory liquidation is court ordered as part of bankruptcy proceedings so that any assets will be liquidated to pay outstanding debt. Voluntary liquidation can take on two forms, Creditors' Voluntary Liquidation and Members' Voluntary Liquidation.

Members' Voluntary Liquidation means that the company is still solvent and for one reason or another is being dissolved. To the best of the director's knowledge (and of course the members' knowledge) the company is able to pay off any outstanding debt. On the other hand, Creditors' Voluntary Liquidation is when the company sees that it is insolvent, will most likely not be able to satisfy current debts and would like to liquidate voluntarily as an alternative to declaring, or being declared, bankrupt.

The liquidation process, whether voluntary or compulsory, is a prelude to the dissolution of a company and very strict guidelines must be adhered to. The company liquidation procedure in compulsory liquidations is ordered by the court and a trustee or liquidator is court appointed. The liquidator in voluntary liquidations is chosen by either the members of the company or its creditors, depending on whether the liquidation is Members' or Creditors'.

Rules are to be followed as to when the liquidation is to be posted in the Gazette and local papers as well as when meetings must take place to inform creditors of the liquidation. Filing fees are involved and a formal petition (in voluntary liquidations) must be filed with the court. There are a number of procedural guidelines which must be followed and a qualified Insolvency Practitioner is most often employed to oversee the entire process. If you have any questions regarding the liquidation process, the best person to explain the procedure would be your IP. However, there are ample resources on the R3 website as well as the UK Insolvency website that will help you better understand what to expect, what your rights are as well as the rights of others involved.

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