About Liquidation

Here is an overview of what is liquidation and what you need to know.

What is liquidation?
  • A process by which a company’s assets are collected and sold in order to pay its debts.
  • Monies remaining after all debts, expenses and costs have been paid off are distributed amongst the shareholders of the company according to their rights and interests or otherwise dealt with as per the constitution of the company.
  • When the winding up has been completed, the company is formally dissolved and it ceases to exist.
  • A company can be wound up in the following ways:
    1. Members’ Voluntary Liquidation (MVL)
    2. Creditors’ Voluntary Liquidation (CVL)
    3. Compulsory Winding Up (CWU)
  • The liquidation of a company is administered by a liquidator:
    1. Usually an accountant by profession.
    2. It is a personal appointment – liquidators conduct the liquidation in their own name.
    3. For voluntary liquidation by creditors and compulsory winding up, the liquidator must be an insolvency practitioner licensed by the Ministry of Law.
Why should I liquidate my company?
  • The company is insolvent.
  • Company has ceased all business activities.
  • Management deadlock.
  • Oppression of minority shareholder.
  • Corporate or financial restructuring of the group to which the company belongs.
  • Minimise tax liabilities or maximise tax advantages for the group to which the company belongs.
  • Breach of statutory provisions.
  • Company acting outside its scope of activities.
  • Assist to protect a director from insolvent trading.
  • Relieve a director’s worry and stress by legally bringing the affairs of the company to a close.
What are the effects of a voluntary winding up/liquidation of a company?
  • The company shall cease to carry on its business.
  • Unless required for the beneficial winding up in the opinion of the liquidator.
  • Any transfer of shares is void unless made to, or sanctioned by, the liquidator and the status of the members cannot be altered unless required for the beneficial winding up in the opinion of the liquidator.
  • The directors’ powers will cease.
  • From the commencement of liquidation, the company must ensure that all documents that it or its officers issues (containing the company’s name) must be followed by the words ‘in liquidation’ after its name.
  • All company books and records to be handed over to the liquidator.
How are assets distributed?
  • Assets are distributed on a pari passu basis. This is subject to exceptions for secured and preferential debts.
  • Asset distribution only occurs in the event that there are sufficient assets recovered.
  • Order of distribution:
    1. Secured creditors
    2. Preferential creditors
    3. Unsecured creditors
    4. Preferred shareholders
    5. Ordinary shareholders
Who bears the costs of the liquidation?
  • Costs of liquidation are typically funded through the realisation of the company’s assets.
How long does a liquidation take?
  • For a straightforward liquidation, it takes approximately 6 months and is subject to the tax status of the company, which means that all outstanding tax assessments up to its commencement must be obtained.
  • However, there is no set timeline for any liquidation and factors to consider include:
    1. Outstanding matters of the company.
    2. Investigation into the affairs of the company.
    3. Finalisation of tax matters and obtaining tax clearance.

What is a MVL?

  • A MVL is available only to solvent companies.
  • The primary purpose of a liquidator in a MVL to a solvent company is to return capital to shareholders and finalise the company’s affairs.

Why would a solvent company want to wind up?

  • Company has ceased all business activities.
  • Management deadlock e.g. business partners no longer want to work together.
  • Corporate or financial restructuring of the group to which the company belongs.
  • Minimise tax liabilities or maximise tax advantages for the group to which the company belongs.

What are the requirements for MVL?

  • Majority of shareholders (75% or more) agree to wind up the company.
  • Majority directors must form the opinion and declare that the company will be able to settle all its liabilities within 12 months of commencing the MVL.
What is the Process of a MVL?

What is a CVL?

  • A CVL is a voluntary process that enables shareholders to appoint a liquidator in order to formally close down an insolvent company which is unable to pay its debts.
  • An licensed insolvency professional must be appointed and the role of a liquidator in a CVL is to wind down the affairs of the company, realise the company’s assets and distribute proceeds from realisation of the company’s assets.
  • For insolvent companies with no viable future, a CVL might be the best option for all parties concerned in order to cut losses as much as possible.
  • In such instances, it is crucial for directors to seek advice as soon as possible in order to understand their responsibilities as directors of an insolvent company.
  • Directors of insolvent companies must be cautious when it comes to trading or making payments to creditors if the company does not have the means to pay off all its creditors – payment to one creditor over another may be viewed as undue preference for which the director may become personably liable for.
  • Directors should act as soon as possible once they learn their company is insolvent. Putting off decisions could put you in a worse position where there are fewer options available to you.
  • Such situations can be very stressful for all parties involved. Our team of experienced insolvency professionals is here to guide and assist you. Contact us to find out more.

What are the requirements for CVL?

  • The company is insolvent.
  • Majority of shareholders (75% or more) agree to wind up the company.

What the advantages of CVL?

  • Immediate relief from debt and creditor pressure.
  • Reduced risk of wrongful trading.
  • Allows directors to move on and creditors to recover as much money as possible where there are available realisable assets.
What is the Process of a CVL?

The company itself, creditors, contributories, liquidator, judicial manager or the Minister may present a winding up application to the High Court.

There are 2 main reasons for a company to be wound up by court:

  1. Inability to pay its debts
  2. Just and equitable

For most cases, a winding up application is made by a creditor against a company for failure to pay its debts. The liquidation process for compulsory winding up is as follows:

What is the Process of a CWU?
MEMBERS’ VOLUNTARY LIQUIDATION (MVL)

What is a MVL?

  • A MVL is available only to solvent companies.
  • The primary purpose of a liquidator in a MVL to a solvent company is to return capital to shareholders and finalise the company’s affairs.

Why would a solvent company want to wind up?

  • Company has ceased all business activities.
  • Management deadlock e.g. business partners no longer want to work together.
  • Corporate or financial restructuring of the group to which the company belongs.
  • Minimise tax liabilities or maximise tax advantages for the group to which the company belongs.

What are the requirements for MVL?

  • Majority of shareholders (75% or more) agree to wind up the company.
  • Majority directors must form the opinion and declare that the company will be able to settle all its liabilities within 12 months of commencing the MVL.
What is the Process of a MVL?
CREDITORS’ VOLUNTARY LIQUIDATION (CVL)

What is a CVL?

  • A CVL is a voluntary process that enables shareholders to appoint a liquidator in order to formally close down an insolvent company which is unable to pay its debts.
  • An approved liquidator must be appointed and the role of a liquidator in a CVL is to wind down the affairs of the company, realise the company’s assets and distribute proceeds from realisation of the company’s assets.
  • For insolvent companies with no viable future, a CVL might be the best option for all parties concerned in order to cut losses as much as possible.
  • In such instances, it is crucial for directors to seek advice as soon as possible in order to understand their responsibilities as directors of an insolvent company.
  • Directors of insolvent companies must be cautious when it comes to trading or making payments to creditors if the company does not have the means to pay off all its creditors – payment to one creditor over another may be viewed as undue preference for which the director may become personably liable for.
  • Directors should act as soon as possible once they learn their company is insolvent. Putting off decisions could put you in a worse position where there are fewer options available to you.
  • Such situations can be very stressful for all parties involved. Our team of experienced insolvency professionals is here to guide and assist you. Contact us to find out more.

What are the requirements for CVL?

  • The company is insolvent
  • Majority of shareholders (75% or more) agree to wind up the company.

What the advantages of CVL?

  • Immediate relief from debt and creditor pressure.
  • Reduced risk of wrongful trading.
  • Allows directors to move on and creditors to recover as much money as possible where there are available realisable assets.
What is the Process of a CVL?
COMPULSORY WINDING UP (CWU)

The company itself, creditors, contributories, liquidator, judicial manager or the Minister may present a winding up application to the High Court.

There are 2 main reasons for a company to be wound up by court:

  1. Inability to pay its debts
  2. Just and equitable

For most cases, a winding up application is made by a creditor against a company for failure to pay its debts. The liquidation process for compulsory winding up is as follows:

What is the Process of a CWU?

Have questions?
Take a look at our FAQ or feel free to contact us and we will do our best to provide you with some answers.

Useful links
Further information about liquidation can be found at Ministry of Law.