Voluntary liquidation processes available

Voluntary liquidation processes available

In the winding-up or liquidation (the terms are interchangeable) of a company, its assets are collected in, sold, and the net proceeds distributed to its creditors, with any surplus paid to its shareholders.

The 2 types of liquidation of a company are:

  • Compulsory liquidation - a court based process; and
  • Voluntary liquidation - a non-court based process (discussed below).

A voluntary liquidation can either be a members' (MVL) or creditors' (CVL) voluntary liquidation. The difference between the two is that the former is a 'solvent' process while the latter is only possible if the company is insolvent.

A voluntary liquidation starts at the time that the directors pass a resolution for the voluntary winding-up of the company. However, the company must give 5 days' written notice to any qualifying floating charge holder (QFCH) before this resolution may be passed, unless the QFCH consents in writing to the passing of the resolution.

In a voluntary winding up (whether members' or creditors'), like in compulsory winding up, creditors must prove their debt if they wish to recover it in whole or in part from the insolvent company. The exception to this is if it is a small debt of a £1000 or less, as the liquidator may then by notice advise the creditor that they intend making a distribution and that the creditor's claim is for that purpose acknowledged in the amount shown in the notice. The creditor will only have to prove their debt if they are not in agreement with the amount shown in the notice from the liquidator.