Quick Liquidation Facts

Published: 16/11/2021 By Jane Price

In a liquidation of a company the assets are collected and sold by the appointed Insolvency Practitioner (IP).  The proceeds are used to pay creditors, in a specific order i.e.

1. Fixed charge creditors from fixed charge assets
2. Expenses of the liquidation
3. Liquidators fee
4. Preferential creditors
5. Prescribed part
6. Floating charge creditors
7. Unsecured creditors
8. Interest to unsecured and preferential creditors
9. Shareholders

The courts can order a compulsory liquidation (called a winding up) or the directors of the company may decide to put the company into a voluntary liquidation.  In a compulsory liquidation, HMRC’s Official Receiver initially acts a liquidator.  However an IP may be appointed at a later date.  Whereas in a voluntary liquidation the liquidator (the Insolvency Practitioner) can be chosen.

Before a voluntary liquidation, an IP may help directors meet legal duties such as calling meetings of shareholders and seeking a decision from creditors.

If a business is solvent, it may be wound-up in a members’ voluntary liquidation (MVL).  For this to happen it must be possible to pay all creditors in full, with statutory interest, if applicable.  An IP must still be appointed liquidator who will then help take the director through the process of an MVL.

Useful links
The difference between Liquidation and Insolvency
Take the Insolvency Test
Winding up Petitions and how they work