Many people have a misconception between voluntary liquidation and involuntary liquidation. However, both are completely different. In involuntary liquidation, outside authority (like a court) instructs a company to liquidate its property. Alternatively, in voluntary liquidation, a company freely decides to sell of its property to cover the debts and pay the profits of the sale to its shareholders.
There are numerous reasons why voluntary liquidation can be undertaken. If the members of a company either die or leave and shareholders of the business choose not to continue with the business, they can decide that selling off the assets of the company would be preferable instead of trying to replace the lost members of their team.
Another reason the company can decide to undertake voluntary liquidation is to release necessary funds. Also, when a company thinks that it is no longer capable of paying off debts to its creditors, opting for voluntary liquidation is the right thing to do.
After realising that the company is unable to pay off the creditor’s debts, voluntary liquidation is an appropriate alternative instead of declaring bankruptcy. Thus, by taking voluntary liquidation, a company can not only save their valuable time but also can save their money. Once such resolution is accepted, the company generally stops doing business.
If an agreement cannot be realised in a meeting, a liquidation committee – a council of creditors, can be appointed to decide how the process of voluntary liquidation can be handled.