When a business company goes through a liquidation process, its assets will be used to repay its debts and it will be closed down with its official name removed from the record. Typically, a business liquidation can either be solvent or insolvent. The solvent type liquidation process is also known as the MVL - Member’s Voluntary Liquidation wherein the directors are retiring or the business is deemed no longer serving useful purpose.
On the other hand, the insolvent type of business liquidation usually happens when the company is not able to meet its financial obligations and the overall goal of the decision is to divide whatever is left in the company for all its creditors. This is the most common type of liquidation that companies go through and most often than not, the unsecured creditors get very little return after the process. In other words, insolvent business liquidation occurs when the value of business assets is smaller than its liabilities or the company bills are not being paid. Insolvent liquidation involves two different processes.
Creditors’ Voluntary Liquidation (CVL): this option is considered when the case is hopeless or the company can’t be recovered any further. Also, a business will be prompted to take this decision when the company receives a threat of legal action from its creditors and it is often in the interests of all parties.
Compulsory Liquidation: this is in contrast to voluntary business liquidation in that it is the creditor or creditors, not the directors, who force the company to liquidate. The creditor petitions the court for the company’s termination.
If liquidation has been decided upon, regardless of who initiates it, the appointed liquidator is responsible for realization of the company’s assets and for giving the creditors what they deserve. Other tasks of the liquidator involve dealing with outstanding contracts, informing the creditors about the progress of the process, interviewing the directors, and removing the company’s name from the registry.