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Applies to companies or partnerships.
In general, liquidation has two main purposes:
- The realisation and distribution of the assets, not necessarily involving the closing down of the business;
- To investigate the directors' conduct and to report to the DTI.
There are 2 basic types of liquidation - compulsory and creditors'. These refer to the alternative way in which a liquidation commences, either by a Court Order (requested by a creditor such as HM Revenue & Customs - known as a compulsory liquidation), or by a resolution of the Company’s directors and shareholders, known as a voluntary liquidation.
Compulsory Liquidation
The placing of a company into liquidation as a result of an application to the court, usually by a creditor. The Official Receiver is always the initial liquidator and conducts the investigation of the directors' conduct.
Voluntary liquidation
A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation:
- Members' voluntary liquidation (MVL) for solvent companies – where all creditors will be paid in full. No investigation of the directors is usually required as all parties have been paid in full. This is often used as a more tax efficient distribution of funds to shareholders
- Creditors' voluntary liquidation (CVL) for insolvent companies – It is commenced by resolution of the shareholders, but is under the effective control of creditors, who can choose the liquidator.
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