Liquidation—an introductory guide

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Liquidation—an introductory guide
  • Process and effect
  • Forms of liquidation
  • Effect of appointment
  • Comparison table

Liquidation—an introductory guide

Process and effect

'Liquidation' or 'winding-up' is the process by which the affairs of a company and the company’s existence are brought to an end. When a company is liquidated:

  1. 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)

  2. its assets are realised (brought into a liquid form), and

  3. the proceeds are distributed to those entitled

A liquidator must fulfil this function following the duties imposed and powers granted to them under the Insolvency Act 1986 (IA 1986) and the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024. For more information, see Practice Note: Role, powers, functions and duties of a liquidator.

Forms of liquidation

Liquidation may be either:

  1. insolvent (where a company is unable to pay its debts or its liabilities are greater than its assets), or

  2. solvent

Liquidation may be commenced:

  1. by court order (see Compulsory liquidation—overview), or

  2. out of court (voluntary liquidation)

The appointment of a provisional liquidator is, in effect, an interim liquidation, where either the official receiver or a licensed insolvency practitioner (IP) is appointed under section 135 IA 1986 as provisional liquidator of a company before the company is wound up by the court, or the winding-up petition has been heard or dealt with. For more information on the appointment of a provisional liquidator, see: Provisional

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