What is liquidation?


A company that is liquidated ceases trading and is legally wound up in accordance with company law. All assets are sold to raise cash that is fairly distributed between creditors.

If liquidation is initiated internally by the directors and the creditors agree then it is known as Creditors Voluntary Liquidation (CVL). The directors and creditors appoint the Insolvency Practitioner to oversee the liquidation. Hopefully the company will be wound up in a controlled manner, within company law, to the satisfaction of the directors.

If liquidation is initiated externally by disgruntled creditors it is known as a 'compulsory liquidation'. This is massively damaging to a company and should only be allowed if it is financially impossible to avoid. However it is simple for such a petition to be issued. All it requires is for a creditor to be owed more than £750, for the creditor to have requested payment and for the company not to have disputed the debt and not settled it within 21 days. We cannot stress our advice too strongly - do not allow a compulsory winding up of your company unless it is absolutely unavoidable. Contact us immediately if there is any possibility of this happening.

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