Creditor’s voluntary liquidation is similar to personal bankruptcy. However, it exclusively deals with the insolvent businesses. When a business can no longer hold its present market share or is no longer viable, it is common for the company’s directors to opt to cease the business whilst liquidating their assets. This is generally carried out in order to pay the companies outstanding debts.
In voluntary liquidation, the assets of a company are liquidated voluntarily and not forced, as this would be compulsory liquidation. The charge of improper trading is often a major reason why companies initiate voluntary liquidation. Improper trading is when the company directors realise that their business is insolvent but still continue with their business, which could be seen as misleading their shareholders.
The process of voluntary liquidation is not particularly complicated. The first step involves the company’s directors organising a meeting, in which they will confirm with the company shareholders that their business is insolvent. They will also advise that it would be economically foolish to accept any additional credit from creditors as they would be unable to make any repayments.
After the initial procedure is complete, there is generally voting, where a resolution is passed to stop any trading and to start looking for a liquidator.
Provided a few simple steps are followed, voluntary liquidation should be a relatively smooth process.