FAQs
Frequently Asked Questions
Understanding Liquidations before flicking the switch can be daunting. We have some FAQ'S that may help guide you to the next appropriate step.
Company liquidation is the process of closing down a business and distributing its assets to pay off creditors. It usually occurs when a company cannot pay its debts and is no longer viable. During liquidation, a liquidator is appointed to assess, sell, and distribute the company’s assets to settle outstanding debts. Here's an overview of how it works:
Types of Liquidation
- Voluntary Liquidation: Initiated by the company’s shareholders or directors.
- Compulsory Liquidation: Ordered by a court, usually when a creditor petitions that the company cannot pay its debts.
Liquidation is a complex process, often handled by professional liquidators, to ensure legal compliance and fair debt repayment.
A company should consider liquidation when it becomes insolvent and can no longer pay its debts. Other indicators may include ongoing losses, inability to secure new financing, or shareholders deciding to close the business. Consulting with financial advisors or a liquidation specialist can help determine if liquidation is the best option.
There are two main types of liquidation: voluntary and compulsory. Voluntary liquidation occurs when shareholders or directors decide to liquidate, either because the company is solvent (Members' Voluntary Liquidation) or insolvent (Creditors' Voluntary Liquidation). Compulsory liquidation is mandated by a court, typically due to a creditor's petition.
In liquidation, secured creditors, such as banks with collateral, are paid first. Next, priority is given to preferential creditors, like employees owed wages. Unsecured creditors, such as suppliers, are paid afterward if funds remain. Shareholders receive any residual funds only if all creditors are fully paid.
Employees may be made redundant when a company is liquidated. In some cases, employees are entitled to redundancy payments, unpaid wages, and holiday pay, which are given priority in the liquidation process. The liquidator handles these payments based on available funds.
The duration of liquidation varies, typically ranging from a few months to several years, depending on factors such as the complexity of the company’s assets, legal issues, and creditor claims. The liquidator's goal is to complete the process efficiently while maximizing returns for creditors.
