In very simple terms there are three different types of liquidation ranging from solvent, insolvent and forced liquidation. Both solvent and insolvent liquidations are voluntary liquidation processes, whereas the forced liquidation is not. If you area limited liability partnership (LLP) then the limited company rules apply.
The Insolvency Service provide a full overview of all types of company insolvency and you can view their website to see what they have to say.
Solvent Liquidation (Members’ Voluntary Liquidation)
A members’ voluntary liquidation allows directors and shareholders to close a limited company down with the intention of extracting cash or assets in a tax efficient way. However, the company must be solvent. What this means is the company must be able to repay all of its creditors within a 12 month period or has already paid off all creditors. An Insolvency Practitioner could not close an insolvent company down through the use of a members’ voluntary liquidation process.
Insolvent Liquidation (Creditors’ Voluntary Liquidation)
A creditors’ voluntary liquidation is a solution for a limited company that is struggling to stay afloat. If the directors and shareholders wish to liquidate the company and move on with other things whilst writing off unsecured company debt – a creditors’ voluntary liquidation would be the solution to choose. This voluntary liquidation solution would usually be selected as a last resort, after all other options have been considered.
A forced liquidation is usually initiated by one of the creditors through the use of a winding up petition. The intention of winding up a limited company with a winding up petition is generally to force the limited company into closing down, usually so that the creditor can get some return as the company may not have been paying bills on time, or a similar situation like this.