Also known as winding up, insolvent liquidation is the most common insolvency process. It recognises that the company cannot pay its creditors in full, either now or in the future. A liquidator is appointed to wind up the affairs of the company, and it is the job of the insolvency practitioner to realise (liquidate) the assets and raise as much money as possible from their sale. Once in liquidation, the company usually ceases to trade.
Types of liquidation
There are two forms of liquidation in Scotland – court liquidation (also called compulsory liquidation) and voluntary liquidation. The directors or the company can choose to enter liquidation voluntarily, and pick their preferred liquidator, or the company can be forced into liquidation by a creditor, in which case the creditor can choose their preferred liquidator.
The money raised by the sale of the assets goes to pay back the creditors. Depending on the amount available, they may get none, some or all their money back. Creditors are bound by the legal process of liquidation, and cannot take any further action against the company, nor can they demand more than is available by way of dividend.
The liquidator also has powers in law to investigate the transactions of the company pre-insolvency, with a view to recovering any money or assets transferred out of the company to the detriment of the creditors generally.
An insolvency practitioner must be appointed as liquidator to deal with the company’s assets and liabilities. Dunedin Advisory’s insolvency practitioners are qualified to act as liquidators. We can advise you, whether you are a creditor, director or shareholder, on the right route to a liquidation appointment.
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