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Insolvent vs. Solvent Liquidation

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In the UK a company can always be liquidated but there are different procedures involved with insolvent liquidation as opposed to solvent liquidation. The first thing probably to understand is the difference between being solvent and insolvent, of course. If you're looking for an insolvent definition it simply means that a company did not have the wherewithal to pay its debts. Filing insolvency can be voluntary or compulsory. Voluntary liquidation is when the director and shareholders recognize that they are unable to pay those bills and seek what is known as Creditors' Voluntary Liquidation, CVA. If the insolvent liquidation is sought by the creditors it would then be court ordered and compulsory and administrator would be appointed to oversee the administration liquidation.

However, an insolvent company definition wouldn't necessarily mean that the company would need to be liquidated. Rescue efforts on the part of Insolvency Practitioners can often times during the company around thereby rescuing it from being bankrupted. It should be understood that the only time a company can seek solvent liquidation is if all debts are paid in full when the company seeks a winding up order. If all debts are paid in full there will be no negative repercussions levied against the directors and/or shareholders. Solvent liquidation is voluntary and it can be sought for many reasons, among which would be that the business owner or owners simply want to retire.

The key to understanding the difference between insolvent and solvent liquidation is an insolvency means a business cannot pay their debts while solvency means that all debts have been paid. In either case the business seeks to wind up usually through the services of an Insolvency Practitioner according to the winding up laws in the UK. Note that England and Wales follow one set of laws while Scotland and Northern Ireland have their own liquidation regulations.

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