Liquidation is when a company is wound up. The person appointed to carry this out is ‘the liquidator'. There are two types of liquidation: voluntary liquidation and compulsory liquidation.
This can happen in two ways:
- members' voluntary liquidation (MVL) – the directors have declared that the company is solvent
- creditors' voluntary liquidation (CVL) – the directors have not made this declaration
MVL happens when the directors have looked into the company's finances and declared that they believe it can pay off its debts in the next 12 months.
CVL happens when a company cannot pay its debts.
This is when a company is wound up by order of the court. This order can be made by the Court of Session or Sheriff Court. An order might be made after a creditor applies to the court because the company cannot pay its debts.