This occurs where the shareholders, usually at the directors' request, decide to put a company into liquidation because it is insolvent. Either the company cannot pay its debts as they fall due or it has more liabilities than assets.
The purpose of the liquidation is to appoint a responsible person who has a duty to collect the company’s assets and distribute them to its creditors in accordance with the law. That person is the liquidator, who must be a licensed insolvency practitioner.
Where the core business is unprofitable, and there is no hope of a trading solution, liquidation is the likely result. There are three types of liquidation.
Creditors voluntary liquidation - when the company makes the decision
The directors call meetings of the members and creditors of the company in order to appoint a liquidator
The members appoint a liquidator but this has to be ratified by the creditors
The creditors have power to appoint an alternative liquidator
The role of the liquidator is to realise the assets of the company and to distribute them to the creditors in order of priority and return any surplus to the shareholders
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