liquidation, a limited company is shut down and its assets are sold in order to pay off outstanding debt. Liquidation can be voluntary in which case a liquidator is assigned by the shareholders or compulsory whereby the company obtains a court order to allege that one or more of the required grounds exist.
During the liquidation process, the directors/shareholders are furnished with various documents such as a list of creditors and in the case where directors or employees are eligible for redundancy claims they can be used to pay for liquidation if necessary.
An Insolvency Practitioner (IP) is appointed liquidator and notices are sent out calling shareholder and creditor meetings. The liquidator then collects all company assets including uncalled capital in order to distribute them and any surplus funds to the appropriate parties. If there are any outstanding claims, they are also satisfied in order of priority.
Causes of Liquidation
Common causes of liquidation include:
- Late payments
- Increased competition
- Dips in the market
- Incorrect pricing of goods
- The loss of a major customer or supplier