How long does a liquidation process take? What factors influence the timeline? In the world of corporate liquidations, the duration varies widely depending on the complexity of the company’s assets, creditors, and legal matters. Could voluntary versus compulsory liquidation significantly affect the process? Let’s explore these key differences and timelines.
How Long Does a Liquidation Process Take?
The duration of a liquidation process can vary significantly depending on the complexity of the company, the nature of its assets, and legal jurisdiction. How long does a liquidation process take? Besides the complexity of the circumstances, duration is also dependent on whether the liquidation is voluntary or compulsory. Here’s the breakdown:
Voluntary Liquidation – Voluntary liquidations are when the company chooses to wind up and the process can take anywhere from six months to two years. Simpler cases may close within months, while more complex situations involving numerous creditors or assets may extend beyond two years. There are two types of voluntary liquidation:
Member’s Voluntary Liquidation (MVL) - A Member’s Voluntary Liquidation is for solvent companies, meaning they are able to pay off their debts in full. The process begins when the company’s shareholders pass a resolution to wind up the company, and the directors make a formal Declaration of Solvency, indicating that the company can meet its liabilities within 12 months. A liquidator is then appointed to sell off the company's assets, settle with creditors, and distribute any remaining funds to the shareholders. Usually, this process takes 6 months to a year, but it may extend if the company's assets are complex or if disputes arise.
Creditor Voluntary Liquidation (CVL) – This type of liquidation occurs when a company is insolvent and unable to pay its debts. Although the directors initiate the process, creditors must agree to the liquidation for it to proceed. A liquidator is appointed to sell the company’s assets, repay as much debt as possible, and distribute any remaining funds to creditors in a specific order of priority. The entire process can take 1 to 2 years or more, depending on how quickly creditor claims are settled and assets are sold.
How long does a liquidation process take? The voluntary options vary from 6 months to 2 years or more. What about Compulsory liquidations? What are they and how long is the process?
Compulsory Liquidations – Compulsory liquidations are court ordered company wind ups, usually initiated by a creditor who is owed more than a certain threshold, e.g., $750 in some jurisdictions, and is having difficulty getting paid. Here’s the process:
The compulsory liquidation process begins when a creditor, company director, or shareholder files a petition for liquidation. The court evaluates the case, and if the company is found to be insolvent, a winding up order is issued. The court then appoints an official receiver or liquidator, a government official responsible for managing the liquidation. This liquidator takes control of the company’s assets, halts its operations, and dismisses employees.
During the asset liquidation and creditor repayment phase, the liquidator sells the company’s assets and uses the proceeds to repay creditors in a legally defined order of priority. Secured creditors, those with collateral, are paid first, followed by administrative costs, legal fees, and unsecured creditors, and, if any funds remain, shareholders.
Once all assets are liquidated and creditors are repaid, the company is formally dissolved and ceases to exist. This process often takes longer due to legal complexities and asset sales, usually lasting from one to several years.
How long does a liquidation process take? Voluntary and compulsory liquidations serve different purposes and operate on varied timelines. Voluntary liquidation is initiated by the company itself, often due to insolvency or a decision to wind up operations. The process can take 6 months to 2 years depending on the complexity of assets and creditor agreements. In contrast, compulsory liquidation is initiated by the court, often at the request of creditors when a company is unable to pay its debts. This process tends to be lengthier, usually taking 1 to several years due to legal intricacies and asset sales. Both result in the dissolution of the company, but compulsory liquidation is often more contentious and complex.
