Company liquidation is the process of closing down a company. It is an event that usually occurs when a company has no money to pay its remaining debt. When the company operation ends, usually the organizational assets are distributed to creditors and shareholders, based on their priority of claims.
In general, the person who conducts the overall liquidation process is called liquidator. A liquidator is appointed by the court or the shareholders of the company, according to the type of liquidation.
Types of Liquidation
Company liquidation may be of the following two types:
a. Voluntary Liquidation
In case of voluntary liquidation, the shareholders of a company will decide to wind up the company as they are unable to pay for creditors. In this type of liquidation, priority is given to the creditors.
b. Compulsory Liquidation (wound up by the Court)
Compulsory liquidation is a type of company liquidation which is put forward by court order if the Court is of opinion that it is just and equitable that the company should be wound up. Here, the assets of the company are distributed to the creditors and contributors based on the priority of claims.
c. Liquidation subject to the supervision of the court
The Court may make an order that the voluntary winding up shall continue when a company has by special resolution resolved to wind up voluntarily, but subject to the supervision of the Court.
