Explanation of Creditors’ Voluntary Liquidation


Liquidation is one of the most basic terms in any economic environment. It is the most drastic course of action to liquidate an asset when a business is insolvent. It can go as far as liquidating an entire company, thus closing it down permanently. In this article, we will go over the last option. What is creditors’ voluntary liquidation, why would you enter it and the process of it. 

The definition

What is the creditors’ voluntary liquidation? It is a scenario in which the shareholders of a given company have come to a conclusion that said the company is insolvent. It can also be the case that the company will most likely be insolvent in the near future and these measures are proactive. The main point is that meeting and paying debts in a timely manner is, or will not be possible.

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The creditors’ voluntary liquidation allows for the dissolution of the company’s affairs without involving the law. Resolving insolvency in such a manner allows an orderly realisation and management of the company’s assets. It enables the creditors to get their due and for an investigation to take place. This type of liquidation goes into effect the moment a decision to liquidate has been made and a qualified insolvency practitioner like DW Advisory is available.


As mentioned before, a business can choose to voluntarily enter liquidation because of insolvency or it can be court-ordered. The creditors’ voluntary liquidation can occur when voluntary administration ends. This happens when creditors make a vote for the company to be liquidated or a DOCA (deed of company arrangement) has been terminated. Another way it can happen is when and if the company is insolvent and the shareholders come to an agreement to liquidate it. Insolvent trading is also something that the higher-ups will always try to avoid. 

The process

Let’s go over a step by step run-through of the process. The creditors’ voluntary liquidation can start in one of two ways previously mentioned in the last section. Immediately after, the need for appointing a liquidator will arise. This happens when the directors and shareholders come to an agreement and sign the resolution. It is worth noting that if the commits to the liquidation process.

That is if the court does not allow it with special permits. From this point on, the liquidator in charge takes control of the company. They have the responsibility towards all creditors to protect and collect the company’s assets. Also, they are charged with holding meetings with the creditors and keeping you in the loop on what is happening. While following strict deadlines, the liquidator in charge has the responsibility to investigate and report to the creditors about the company affairs. That includes issues that took place when the business failed. The liquidation is finally complete when the liquidator deregisters the company. 

The aftermath

When the creditors’ voluntary liquidation has been completed, the company will be erased from the register. In the event that there are any liabilities that have remained unpaid by the company, these are written off.

The one exception is that they are personally guaranteed. Investigations by the liquidator do not end with the dissolution of the company, but they go on even further. The liquidator will be investigating any and all actions taken by the ones in charge or that have been in charge for the last three years.

These investigations can come to the conclusion that there were some less than optimally conducted duties. If it is found that the directors have been conducting transactions that were detrimental to creditors they may be found guilty of fraudulent trading. This can result in long-term disqualification from doing their job in the future. This is very rarely the case and directors are almost always free to move on and form their own businesses in the future. 

Creditors’ voluntary liquidation is one of the three forms of liquidation. There are a plethora of reasons why a struggling business might want to opt for this option. 

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