Liquidation, also known as dissolution, is the process undertaken to conclude the affairs of a company that is either no longer needed or cannot continue due to insolvency. In this procedure, the company’s assets are realized, and the proceeds are used to settle its liabilities, prioritizing creditor payments. Any surplus remaining is then distributed among the shareholders. If the assets fall short of covering the liabilities, the company is deemed insolvent, resulting in partial payments to creditors.

Upon the completion of liquidation, the company is dissolved, removing its name from the register of companies, and ceases to exist. There are three types of winding up:

Members’ Voluntary Winding Up:

• Applicable when directors confirm the company can pay all liabilities within 12 months.
• Voluntary winding up occurs with shareholder resolution, and a liquidator is appointed.

Creditors’ Voluntary Winding Up:

• Implemented when a company cannot continue due to liabilities.
• Shareholders initiate winding up, appoint a liquidator, and a creditors’ meeting is held to potentially replace the liquidator.

Winding Up by the Court:

• Imposed by a court order following an application by shareholders, directors, or creditors.
• The Official Receiver investigates and reports to the court on share capital, assets, liabilities, and potential fraud.
• The Official Receiver serves as the initial liquidator until creditors appoint a replacement.

While winding up by the court is a last resort, it is advisable for directors of insolvent companies to initiate voluntary winding up to address the situation before it reaches the compulsory winding-up stage.