Liquidation is used when the decision has been made by the directors to close a limited company. If the company is insolvent (ie it owes money to its creditors which it is unable to pay) then the process required is Creditors Voluntary Liquidation (CVL).
The directors may well have considered ways of keeping the company running either by trying to attract additional investment or raising funds in other ways. However these avenues have now been exhausted.
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In additional the directors will also have considered other company rescue solutions such as Company Voluntary Arrangement or a Pre Pack but have come to the conclusion that these options are unacceptable or unviable for some other reason.
If the directors do not now act swiftly to close the company they could be at risk of knowingly allowing the company to continue to trade while insolvent and making the position of the company’s creditors worse as a result. The closure of the business is therefore seen as the only option.
Only a brief overview of when to use Creditors Voluntary Liquidation is given here. For more information see one of our dedicated websites: