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What is the difference between a Creditors’ Voluntary Liquidation and a Compulsory Liquidation?

Companies may be liquidated by way of:

(i)             a members' voluntary liquidation (only if the company is solvent);

(ii)            a creditors' voluntary liquidation; or

(iii)           a compulsory liquidation.

 

Creditors' voluntary liquidation (or CVL) is the process by which a company, its shareholders and its creditors appoint the liquidator without the involvement of the court.  Initially the shareholders will appoint the liquidator, although the creditors may subsequently put their own choice of liquidator in office if they wish.  

Compulsory liquidation is where the court appoints the liquidator to the company.  It is more formal, and therefore slower and more expensive than a CVL but may be necessary when the company (or its shareholders) do not wish to take steps to wind up the company.

In both a compulsory liquidation and a CVL the liquidator will sell the assets of the company and is obliged to investigate the conduct of the directors.  The liquidator acts independently of the directors and may commence court proceedings against directors or third parties before distributing funds to creditors.  At the end of the liquidation, the liquidator will make an application to Companies House for the dissolution of the company.

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