The liquidation of an insolvent company will be either a company voluntary liquidation (CVL), which is instigated by resolution of the shareholders, or a compulsory liquidation, begun by a petition to the court (usually by creditors).

WHAT IS A CVL?

A CVL is a liquidation begun by resolution of the shareholders.

The CVL is the most common way for the directors and shareholders of a company to deal voluntarily with a company that is insolvent and cannot be assisted by way of a CVA.

Top of the list are secured creditors, those creditors who do hold security over a debtor's assets in the form of a charge (also referred to as a mortgage or debenture). Even secured creditors will only get their share of the assets after the costs of realising those assets have been paid.

Assuming that funds still remain, the next group of creditors to receive funds will be preferential creditors, for example VAT, Inland Revenue, national insurance, employees' arrears of wages and holiday pay (to specified limits).

Third in line for any remaining funds are unsecured creditors, who are more often than not trade creditors.

Right at the bottom of the list are the shareholders, who usually will see nothing at all from realisations of the company's assets.

COMPULSORY LIQUIDATION

A compulsory liquidation is ordered by the court, the Official Receiver decides whether the assets of the company are likely to cover administrative costs.

If they are, the Official Receiver will call a creditors' meeting to appoint a liquidator; if not, the case will be handled by the Official Receiver.

In a compulsory liquidation, the conduct of the company's directors will be investigated as part of the procedure, by the Official Receiver.

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