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Creditors Voluntary Liquidation

Creditors voluntary liquidation (or CVL) occurs where the shareholders, usually at the directors request, decide to put a company into liquidation because it is insolvent. A CVL is under the effective control of the creditors, who can appoint a liquidator of their choice. The CVL is the most common way for directors and shareholders to deal voluntarily with their company's insolvency.

Compulsory Liquidation

Compulsory liquidation (or compulsory winding up) is instituted by an order made by the court, usually on the petition of a creditor, the company or a shareholder. There are a number of possible reasons for making a winding-up order. The most common is because the company is insolvent. Insolvency is usually established by failure to comply with a statutory demand requiring payment within 21 days, or by execution against the company's goods being returned unsatisfied. A winding-up petition may also be presented by the Secretary of State for Trade and Industry on the grounds of public interest.

In a compulsory liquidation the function of liquidator is in most cases initially performed by an official called the official receiver. The official receiver is an officer of the court and a member of the Insolvency Service. In most compulsory liquidations, the official receiver becomes liquidator immediately on the making of the winding-up order. Where there are significant assets an insolvency practitioner will usually be appointed to act as liquidator in place of the official receiver, either at a meeting of creditors convened for the purpose or directly by the Secretary of State for Trade and Industry. Where an insolvency practitioner is not appointed the official receiver remains liquidator.

General

Liquidation (or 'winding up') is the most common type of insolvency procedure. Liquidation is the formal winding up of a company’s affairs entailing the realisation of its assets and the distribution of the proceeds in a prescribed order of priority. With few exceptions, liquidation is the end of the road for a company and following liquidation it will be removed from the companies register.

Liquidation may be either compulsory, when it is instituted by order of the court, or voluntary, when it is instituted by resolution of the shareholders. Voluntary liquidation is the more common of the two. An insolvent voluntary liquidation is known as a 'creditor's voluntary liquidation' because its conduct is primarily under the control of the creditors. A solvent voluntary liquidation is known as a 'member's voluntary liquidation' because its conduct is primarily under the control of its members.

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