Understanding liquidations

There are three types of formal liquidation, set out below.  The first two are usually associated with companies that are insolvent, either because their liabilities exceed their assets, or because they can’t pay their debts as and when they fall due.  By contrast, a Members Voluntary Liquidation process is used for solvent companies, whose assets exceed their liabilities, and which can pay their debts:

Creditors Voluntary Liquidation (“CVL”)

This is the most common type of liquidation procedure.  A company becomes insolvent, and the shareholders voluntarily resolve to cease trading and wind up the company.  Whilst the company may have some assets, there won’t be enough to settle the debts in full.  Therefore, creditors end up not being paid, or at best getting a small proportion of what they were owed.

Compulsory liquidation

This usually arises where a company is insolvent and a creditor petitions the Court for the compulsory winding up of the company.  The process can also be used where there is deadlock between the shareholders, or public interest issues.  Again, the outcome is that creditors will rarely see any return on amounts owed to them.

Members Voluntary Liquidation (“MVL”)

The main difference with MVLs is that they are used for companies which are solvent.  Any residual liabilities that the company may have will be settled in full from the assets of the company.  The company is not in any financial difficulties, but for a variety of possible reasons, the shareholders (“members”) decide to wind up the company’s affairs.

It’s only this last type of liquidation that MVL Online® deals with.  No creditors suffer any loss as a result of the process.  It’s an orderly and tax efficient way of delivering the value of the company back to the shareholder at the end of the company’s life.  Further detail of the tax benefits of liquidation over company strike off can be found here.