Voluntary liquidation refers to the process by which a solvent company in good financial standing may opt to dissolve and settle its affairs by liquidating assets and satisfying liabilities in an orderly manner.
Reasons for Voluntary Liquidation:
- Directors vote to cease business operations after achieving strategic goals or facing unviable market conditions.
- Members’ voluntary winding-up occurs via shareholder resolution when the venture is no longer profitable.
Key Steps:
- Appoint liquidators to take custody of assets and records for distribution.
- Notify creditors, tax authorities and relevant regulators of liquidation commencement.
- Sell non-cash assets to settle outstanding debts on priority over surplus distribution to members.
Contrast with Compulsory Liquidation:
While voluntary, compulsory proceedings stem from insolvency petitions from creditors or shareholders seeking debt recovery throughcourt-supervised asset realization and sale.
