Distinguish between compulsory and voluntary winding up of company
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Liquidation is a process whereby a liquidator (or insolvency practitioner) ‘winds up’ a company’s affairs. It sells all of the insolvent businesses’ assets, including property, and the proceeds go to as many creditors as possible.By the end of the process, the company is completely dissolved and struck off the Companies House register.
Compulsory liquidation which is forced on a company by its creditors. It usually comes into force after the approval of a winding up petition in Court. After approval, the Official Receiver takes over, freezes bank accounts and initiate an investigation into the reason leading to the company’s insolvency.A liquidator is appointed if there are assets to recover. The proceeds from this will cover the cost of the liquidation and the balance funds would go to the creditors. However it is unlikely that the creditors receive the full amount owed. The Insolvency Service will also investigate the conduct of the company's directors, seeking examples of wrongful or fraudulent trading.
Compulsory liquidation also referred as a Creditors Voluntary Liquidation. It starts when the directors, and owners, decide to close their business as they cannot pay their creditors. This requires a meeting of the shareholders and creditors to pass appropriate resolutions and appoint a liquidator. Neither the Court or Official Receiver are part of voluntary liquidation. The process is quicker than a compulsory liquidation.
• Voluntary Winding Up of a Business Firm can be undertaken in order to dissolve the firm on account of completion of its business objectives, inability to carry on the business profitably, inability to payback to financial dues, etc. It may be done either by the members or creditors of the firm
• Involuntary Winding Up of a Business Firm is undertaken on the court orders, which are usually targeted by the efforts of creditors against an insolvent business firm, so that proportionate refunds can be attained.