Voluntary Liquidation Of A Business

Article Written By: fair01

Liquidation occurs when a company, or just part of a company, is ended meaning that its assets and property are redistributed and the company no longer exists in a legal sense. Voluntary liquidation then occurs when the owner(s) of a business decide to sell up show willingly for whatever reason.

There are many reasons that a company might go into voluntary liquidation – it might be that the company is no longer profitable (but not necessarily bankrupt in which case it will likely be forced into compulsory liquidation), or that it is slowly losing customers and market share. If the company is already 'winding down' then it might make more logical sense to go into voluntary liquidation before it runs itself into the ground.

A company might also choose to go into if it has many debts to pay off or has developed a bad reputation or simply because the owners no longer wish to continue with the company, perhaps they are retiring, or perhaps they wish to move on to different things. It might not be that the business is failing as such, but that they no longer have the interest and the passion for it that they once did. It then starts when the members of a business choose to wind up their affairs and to dissolve the assets of the business.

The first step is to pass the resolution and from this point on the company will normally stop providing its services or products and generally continuing to do business (though it may have already for whatever reason). In the case that the company is solvent and the members have made a declaration of solvency, then the liquidation will continue as the members' voluntary liquidation.

Otherwise it will be the creditor's voluntary closing down, and there may need to be a meeting of the creditors where the directors will report on the company's affairs. A liquidation committee will in some cases be formed in order to handle the dispersal of assets etc. In some cases there can still be a compulsory order during the process of a voluntary one. This would require the petitioning contributory to convince the court that voluntary liquidation could bias the contributories.

This is all different from selling a company in which case the business will be sold largely intact and will contain most of its original assets and will often continue to operate under the same name, or at least using largely the same structure.

In liquidation however the company is completely 'disbanded' and ceases to exist. For those who were around since the start of a business it can be quite distressing to see it go into liquidation and can be quite an emotional upheaval to see something you put so much work into dissolved in such a way.

However with the right help and advice it is possible to make it more painless, and to help you see it as a fresh start.

About the Author

If you are considering voluntary liquidation, then you should first get advice. There are companies that specialise in insolvency and other solutions to financial difficulty.

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