Compulsory Liquidation vs Voluntary Liquidation

Liquidating an insolvent business can be a stressful time. The realisation that the business cannot be saved and that liquidation is inevitable can be tough to accept and the first stages of the liquidation process and the involvement of a Licensed Insolvency Practitioner, can be a trying ordeal for many company directors.

There are two types of insolvent liquidation – compulsory liquidation or creditors voluntary liquidation (CVL).


Compulsory Liquidation vs Voluntary Liquidation – Which is the better choice?

The difference between compulsory liquidation vs voluntary liquidation is essentially how the company is put into liquidation. In a CVL, the shareholders pass a resolution to wind up the company and appoint a liquidator of their choice. A compulsory liquidation follows on from an order by the Court and the Official Receiver becomes the liquidator.

Voluntary Liquidation (Creditor’s Voluntary Liquidation)

A CVL results in the closure of the company. The Directors lead the process rather than it being imposed upon them. This means that they can select their own insolvency practitioner and, moreover, it shows that they are fulfilling their obligation to act in the best interests of the company and its creditors.

Compulsory Liquidation

A compulsory liquidation is a liquidation in which control has been taken from the hands of the company directors and instead put in the hands of unpaid creditors. They will have decided to take this action in order to recover money owed to them.  Any creditor owed more than £750 can apply to the court for a winding up order and HMRC in particular favour this tactic. However, this comes at a cost to creditors who have to expend money in Court and legal fees which will increase the amount that they are owed. For this reason, creditors only tend to petition for the winding up of a company as a matter of last resort.


How do I start a Creditor’s Voluntary Liquidation?

Once the decision to liquidate has been made, a licensed insolvency practitioner can manage the process of the liquidation itself, relieving the Directors of any additional pressure and making sure the process is completed in a swift and orderly fashion which is of benefit to all concerned.

If your insolvent business cannot be turned around, contact us for a free consultation. We’ll discuss this with you and help you start the process of liquidating your company. Leaving you free to move on and relieve the stress of being the Director of an Insolvent business.