science

Liquidation

Liquidation is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Liquidation rather than just read about it. In short: Liquidation or winding-up is the process in law by which a company is brought to an end and its assets and property distributed to claimants. When a company has been liquidated, it is sometimes said to be wound-up or dissolved, although dissolution technically refers only to the final stage of liquidation.

Key takeaways

Liquidation belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect Liquidation to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of Liquidation from memory before moving on to harder problems.

Reference excerpt

Liquidation or winding-up is the process in law by which a company is brought to an end and its assets and property distributed to claimants. When a company has been liquidated, it is sometimes said to be wound-up or dissolved, although dissolution technically refers only to the final stage of liquidation. Liquidation may be either compulsory, ordered by a court (sometimes called a creditors' liquidation or, in Australia, a wind-up order), or voluntary, begun by the company's members (a members' or shareholders' liquidation), though some voluntary liquidations are controlled by the creditors. The term "liquidation" is also used informally for a company divesting some of its assets. A retail chain wishing to close some stores, for instance, may sell them at a discount to a firm specialising in real estate liquidation rather than handle the disposals itself. A company may likewise sell assets in an orderly way outside a formal insolvency, for example to avoid having its portfolio written down in a compulsory liquidation. In customs law, the term liquidation has a separate meaning: the final computation or ascertainment of the duties or drawback accruing on an imported entry.

Compulsory liquidation The parties which are entitled by law to petition for the compulsory liquidation of a company vary from jurisdiction to jurisdiction, but generally, a petition may be lodged with the court for the compulsory liquidation of a company by:

The company itself Any creditor which establishes a prima facie case Contributories: those who may be required to contribute to the company's assets on liquidation A government minister, usually the one responsible for competition and business An official receiver

Grounds The grounds upon which an entity can apply to the court for an order of compulsory liquidation also vary between jurisdictions, but usually include:

The company has resolved to be wound up The company was incorporated as a corporation, and has not been issued with a trading certificate (or equivalent) within 12 months of registration It is an "old public company" (i.e. one that has not re-registered as a public company or become a private company under more recent companies legislation requiring this) It has not commenced business within the statutorily prescribed time (normally one year) of its incorporation, or has not carried on business for a statutorily prescribed amount of time The number of members has fallen below the minimum prescribed by statute The company is unable to pay its debts as they fall due It is just and equitable to wind up the company In practice, the vast majority of compulsory winding-up applications are made under one of the last two grounds. An order will not generally be made if the purpose of the application is to enforce payment of a debt which is bona fide disputed. A "just and equitable" winding-up enables the grounds to subject the strict legal rights of the shareholders to equitable considerations. It can take account of personal relationships of mutual trust and confidence in small parties, particularly, for example, where there is a breach of an understanding that all of the members may participate in the business, or of an implied obligation to participate in management. An order might be made where the majority shareholders deprive the minority of their right to appoint and remove their own director.

The order Once liquidation commences (which depends upon applicable law, but will generally be when the petition was originally presented, and not when the court makes the order), dispositions of the company's property are generally void, and litigation involving the company is generally restrained. Upon hearing the application, the court may either dismiss the petition or make the order for winding-up. The court may dismiss the application if the petitioner unreasonably refrains from an alternative course of action. The court may appoint an official receiver, and one or more liquidators, and has general powers to enable rights and liabilities of claimants and contributories to be settled. Separate meetings of creditors and contributories may decide to nominate a person for the appointment of a liquidator and possibly of a supervisory liquidation committee.

Administrative receiver The person appointed by the holder of a floating charge debenture over a company's assets to collect in and realise the assets of that company and to repay the indebtedness to the debenture holder. Administrative receivers can no longer be appointed by floating charge holders, with the exception of floating charges created before 15 September 2003.

Voluntary liquidation Voluntary liquidation occurs when the members of a company resolve to voluntarily wind up its affairs and dissolve. Voluntary liquidation begins when the company passes the resolution, and the company will generally cease to carry on business at that time (if it has not done so already). A creditors' voluntary liquidation (CVL) is a process designed to allow an insolvent company to close voluntarily. The decision to liquidate is made by a board resolution, but instigated by the director(s). 75% of the company's shareholders must agree to liquidate for liquidation proceedings to advance. If a limited company's liabilities outweigh its assets, or the company cannot pay its bills when they fall due, the company becomes insolvent. If the company is solvent, and the members have made a statutory declaration of solvency, the liquidation will proceed as a members' voluntary liquidation (MVL). In that case, the general meeting will appoint the liquidator(s). If not, the liquidation will proceed as a creditors' voluntary liquidation, and a meeting of creditors will be called, to which the directors must report on the company's affairs. Where a voluntary liquidation proceeds as a creditors' voluntary liquidation, a liquidation committee may be appointed. Where a voluntary winding-up of a company has begun, a compulsory liquidation order is still possible, but the petitioning contributory would need to satisfy the court that a voluntary liquidation would prejudice the contributors.

Misconduct

… excerpt ends here. Continue reading the full article.

Illustrations

Worked examples

Example 1 — a first encounter with Liquidation

Start with the simplest possible case. Write down what Liquidation claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Liquidation before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Liquidation ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Liquidation

In research: Liquidation appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses Liquidation in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: Liquidation is common in secondary-school and first-year university syllabi. It links to neighbouring topics Bankruptcy, Business economics, Corporate law, so understanding it makes those chapters shorter.
In everyday life: Look for Liquidation outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study Liquidation in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what Liquidation means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain Liquidation out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Liquidation in simple terms?

Why does Liquidation matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Liquidation?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Liquidation.