There are four common types of Appointments of formal Insolvency appointments that are used when a company is in financial trouble are:

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• Creditors Voluntary Liquidation

• Court Liquidation

• Members Voluntary Liquidation

• Voluntary Administration

 

Here is a brief overview of the formal insolvency appointments available when a company is or suspected to be insolvent:

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Liquidation

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Liquidation is the term used to describe the process of winding up the company’s affairs including the realisation of company assets, the ceasing of trade, distribution of proceeds to creditors and distributing the surplus (if any) to its shareholders.

 

 

The three common types of liquidation are:

 

Creditors’ Voluntary Liquidation

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Creditors Voluntary Liquidation (CVL) is the most commonly used type of Liquidation appointment. It is easy, low cost and initiated by the directors and shareholders. It starts with the directors resolving that the company is insolvent and the directors then, with the help of a Liquidator, call an Extraordinary General Meeting for the shareholders to pass a Special Resolution to wind up the company.

 

Click here for further information regarding Creditors Voluntary Liquidations

 

Court Liquidation

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A Court Liquidation is a type of administration that requires an application to the Court by creditors, company members or other interested parties to wind up a company due to unpaid debts. A liquidator is appointed by the Court to administer the insolvency process in order to realise the company’s assets and disburse funds to creditors in accordance with established priorities. They differ from a CVL in that they can be ordered whether the company’s directors agree or not, so they are not voluntary. 

 

Click here for further information regarding Court Liquidations 

 

Members’ Voluntary Liquidation

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Members Voluntary Liquidation (MVL) is only available to solvent companies. The primary reason for a liquidator being appointed to a solvent company is to return capital to shareholders and finalise the company’s affairs. In a practical sense, the affairs of the company must be wound up, including the disposal of all assets, and payment of all liabilities.

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Voluntary Administration

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Directors may appoint a voluntary administrator to take control of the company to navigate a way out of insolvency by seeing if the company and its business can be saved. If it is possible to ‘trade out’ of the difficulties, the voluntary administrator will steer the company through that process.

The administrator, who assumes the powers of the company’s directors (which are suspended as a result of the administration), will review the company’s position and provide a report to creditors on the property, business, affairs and financial circumstances of the company as well as a recommendation as to the most appropriate strategies for the company to take.

 

Depending on the outcome of those investigations, there are three options:

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1) end the voluntary administration and return the company to the control of the directors;

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2) if the company is able to regain its momentum, to recommend and approve a deed of company arrangement (“DOCA”) to allow the company to pay all or part of its debts and maximize creditor returns, or

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3) wind up the company and appoint a liquidator.

 

The court and/or creditors also have the power to appoint an administrator, for example, a secured creditor holding security over most of the company’s assets may decide to appoint an external administrator to govern the company’s affairs.