Creditors Voluntary and Compulsory Liquidation
Creditors' Voluntary and Compulsory Liquidations both envisage the cessation of a company's business and a Liquidator (or possibly the Official Receiver in a Compulsory Liquidation) realising the assets for the benefit of creditors.
Creditors' Voluntary Liquidation affords greater control in the initial stages to the directors and shareholders and can commence within a few weeks of meeting the Insolvency Practitioner.
Compulsory Liquidations involve the Court and The Official Receiver and a winding up petition, usually from a key creditor, followed by a winding up order. Creditors' Voluntary Liquidation tends to proceed faster and involves less cost, often producing a better return to creditors.
Creditors Voluntary Liquation
Pros
- Reasonably quick (2 to 3 weeks)
- Directors/shareholders initiate
- Advice and help from qualified IP
- Creditors fully informed
- Less risk to directors (disqualification etc.)
- Perceived as a "decent burial"
- Creditors immediately recover VAT element
- Better return to creditors than compulsory liquidation
Cons
- Trading must cease
- Employee’s contracts terminate
- Creditors can change liquidator
- Directors' conduct investigated
- Possibly a lower return to creditors than administration
Compulsory Liquidation
Pros
- If a creditor petition no direct cost to company/directors
- If no assets may avoid a creditors' meeting
Cons
- Timing/Legal’s and pressure continue up to Order
- Directors seen to have lost control
- Increased risk to directors
- Employee contracts terminate
- Petitioner's costs are a first charge
- Costly - ad valorem 17% on realisations plus OR/Trustee costs