The liquidation or winding up of a company is when a company is made to cease existing, it is either deregistered or closed. The process of liquidation usually occurs when the company has debts and are unable to pay its creditors. According to the law, there are two types of liquidation: voluntary and compulsory liquidation.
The voluntary liquidation occurs when the shareholders of the company agree to liquidate the assets of the company while the compulsory liquidation is carried out by a court order which is usually served by the creditors. Company liquidations are also determined by 2 factors, solvency and insolvency. When a company is solvent that means it can pay all its creditors, this enables the shareholders to exercise control over the process, in this situation a liquidator is appointed by the board of shareholders who can handle any CVA insolvency process.
In the case of insolvency, it means the company is unable to pay all their creditors as at when due and this is what gives rise to the compulsory liquidation. Usually, in insolvency, the dissolving of the assets of the company may not cover all the debt the company has incurred and this causes conflict between the creditors and the company. As a result of this, the creditors take the case to court, where a judge gives a court order for liquidation.
For a court to give the order of liquidation the creditors will have to present proof of solvency or insolvency. After given the court order the creditors then employ a liquidator and oversee the liquidation process. When a company is going under the first thing they do is employ a liquidator. The liquidator’s role differs from each type of liquidation. In the case of a solvent liquidation, all the liquidator does is collect and handle the assets of the company and is appointed by the shareholders.
The liquidator is also in charge of distributing the debt owed the creditors. The liquidator in an insolvent liquidation is appointed by the creditors and does not only collect assets and distributes them, an investigation will be required of him, an investigation into why the company had to be liquidated. There are some steps to be taken when going through the process of liquidation, these steps are how you liquidate a company.
Firstly, you appoint a liquidator and how you get one is determined by the type of liquidation your company is getting. Secondly, the liquidator who must work within a certain time frame, collects all the assets of the company, then pays all the creditors in order of importance. The order is thus: the costs of liquidation, salaries of employees, creditors and the debts owed to the shareholders of the company.
However, the liquidator after looking through the proof of debt and determines the claim of a creditor is invalid has the power to deny that creditor payment. Thirdly, in the situation of a surplus after liquidating the assets of the company, the liquidator shares this surplus amongst the shareholders. After all of this has been done, the company will be dissolved and will no longer exist, ensuring the CVA insolvency is completed properly.