Liquidation involves selling off all company assets to raise money to repay creditors and then closing the company down. It is the final option for an insolvent company that is not viable. Before liquidation is contemplated all recovery options should be considered. Liquidation does, however, draw a line under company misfortunes and the concerns of directors. Liquidation can be voluntary or compulsory.

Voluntary Liquidation
Creditors Voluntary Liquidation (CVL) is initiated by the directors who, with shareholders, nominate an Insolvency Practitioner to wind up the insolvent company. Creditors formally make the appointment, hence the term CVL. The liquidator must be a licensed Insolvency Practitioner who will dispose of all company assets and share the proceeds with creditors in accordance with their adjudicated claims and priorities. The liquidator will also report on the conduct of the directors in relation to the demise of the company. This should show that the directors behaved responsibly and no wrongful trading took place.

Compulsory Liquidation
Compulsory liquidation is initiated by a creditor, or government agency such as HM Revenue and Customs, who can demonstrate that all reasonable steps to recover an undisputed debt have failed (eg debt collector). A winding up petition is served and a liquidator is appointed by the courts. Either the official receiver or an IP will be appointed to act as liquidator. Even if the debt is paid at this stage the wind-up hearing will go ahead with attendant risk to the reputation of directors. Compulsory liquidation can be seriously damaging to directors and should be avoided if at all possible