Liquidation usually occurs when a company becomes insolvent, which broadly means it is unable to pay its debts as they are due. A liquidator is subsequently appointed to take the appropriate steps to make the company solvent again, or bring the business to an end.
Process
There are a number of ways a company can go into liquidation. In most cases, the shareholders will voluntarily appoint a liquidator.
The resolution that appoints the liquidator is normally special resolution requiring 75% of the shareholders to sign, depending on the company constitution, if any.
Importantly, in most cases, a board resolution is not enough to put the company into liquidation, unless the companies constitution makes provision for the board to do this.
Once appointed, the liquidator will:
- Make a rapid assessment of the company if still trading
- Investigate the affairs of the company
- Take charge of the company’s assets
- Realise the assets of the company
- Distribute the assets according to legislation and schedule of priority
- Report any serious problems
- Report on progress to the creditors and shareholders on a regular basis.