The following Property guidance note provides comprehensive and up to date legal information covering:

  • Insolvency—liquidation
  • Forms of liquidation
  • The official receiver
  • Effect of appointment
  • Liquidator's powers
  • Contract for sale drafting considerations
  • General drafting considerations

Forms of liquidation

'Liquidation' or 'winding up' is the process by which a company is brought to an end. When a company is liquidated its business is terminated, although it may need to be carried on temporarily as part of the winding-up process (eg to enforce any valuable contracts), its assets are realised and the proceeds are distributed to those entitled.

Liquidation may be either insolvent or solvent, and may be commenced:

  1. by court order ('compulsory liquidation'), or

  2. out of court (‘voluntary liquidation’)

A voluntary liquidation of:

  1. an insolvent company is a creditors' voluntary liquidation ('CVL')

  2. a solvent company is a members' voluntary liquidation ('MVL') and is dependent on a declaration of solvency by the directors

The parties to whom a liquidator is answerable depends on the type of liquidation:

  1. MVL—the liquidator must primarily consider the interests of the shareholders who have appointed him

  2. CVL—the interests of creditors come first; a creditors' meeting is required to be held within 14 days of the winding-up resolution at which the creditors have the right to appoint the liquidator and to establish a liquidation committee to oversee the conduct of the liquidation

  3. Compulsory liquidation—the interests of creditors are also central and they have similar rights to hold a creditors’ meeting, to appoint a liquidator and to establish a liquidation committee

The official receiver