Compulsory Liquidation Case Study
Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of the liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding custom duties, determines the final computation or ascertainment of the duties or drawback accruing on the entry.
Compulsory liquidation:the parties who are entitled by the law to petition for the compulsory liquidation of a company vary from jurisdiction to …show more content…
A company can enter liquidation in one of two ways.
1. By compulsory liquidation, or
2. By voluntary liquidation
What is compulsory liquidation?
Compulsory liquidation is when a winding up petition is presented to the court and served on the company. A petition can be made by the company itself its directors or any creditor. A company can be placed into compulsory liquidation for a number of reasons.
1. Its inability to pay its debts;
2. It being just and equitable to do so; or
3. The passing of a special resolution
The most common ground is inability to pay its debts. In order to ascertain whether a company is unable to pay its debts, the insolvency Act 1986 looks at the company balance sheets and cash flow. The company’s failure to comply with the statutory demand which is a written demand for payment submitted in accordance with the law, will amount to inability to pay its debts.
Once a petition has been presented, the court will schedule a hearing date and the petitioner, who is the person making the petition? Must for example. Serve and advertise the petition in the London gazette.
At the hearing the court has the discretion to make a winding up order, or to dismiss or adjourn the …show more content…
Dissolution means broken up or ended. Dissolution word is derived from Latin word dissolute, means “a dissolving of something.” Dissolution looks very similar to “dissolve” so you help to remember that the meaning, think about what happens if you put paper in water- it breaks apart.
Dissolution of a marriage is the same thing as divorce.
Overview for corporate liquidations\dissolutions
1. A corporate liquidation should be considered at two levels, the shareholder level and the corporate level. On the shareholder level, a complete liquidation can be thought of as sale of all outstanding corporate stock held by the shareholders in exchange for all of the assets in that corporation.
2. Like any sale of stock the shareholder receives capital gain treatment on the difference between the amount received by shareholder in the distribution and the cost or other basis of the stock.
3. At the corporate level, the corporation recognize gain or loss on the liquidation in an amount equal to the difference between the fair market value and the adjusted basis of the assets distributed.
4. Some corporations adopt plans of liquidation which on the surface appear to meet the various statutory requirements for