When companies face the problem of insolvency or bankruptcy, certain people are brought into play to help resolve the situation. The people called into help with the insolvency are known as receivers and liquidators. The receiver and liquidator play different roles in helping a company and those the company owes in dealing with bankruptcy.
The liquidator's role in insolvency involves liquidating a company's assets and turning the assets into cash to pay the companies creditors. Liquidators do not concern themselves with rescuing the company but are concerned with getting the most out the company's assets for the sake of the creditors. Liquidators are qualified insolvency practitioners who are appointed for the liquidation duties.
Receivers are appointed to manage a company's assets for the benefit of a fixed or floating charge-holder. A fixed charge is when a charge is backed by a specific item, float charge is when the assets backing the charge are unnamed and can include current and future assets. Receivers do not have to be insolvency practitioners.
Types of Liquidation
There are three different types of liquidations dependent upon who begins the liquidation process.
Voluntary Members Liquidation is when members of a company initialise the liquidation. In this type of liquidation the company is not indebted but just desires to close down. The liquidation occurs by the directors swearing a declaration of solvency and paying all their creditors.
Creditors Voluntary Liquidation is where a company is not able to pay bills when they are due, the liquidators are called in. This liquidation is like a Voluntary Members Liquidation but differs in that it is an insolvent liquidation, which means that the company was unable to meet their financial obligations.
Compulsory Liquidation is a court-ordered liquidation that occurs when a company can not meet their financial obligations when they are due. These liquidations are often initialised by a creditor attempting to collect a debt owed.
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