Full Question: What do you mean by liquidation? Mention any five differences between voluntary and involuntary liquidation of a company.
Answer:
Liquidation refers to the process of winding up a company’s affairs, including selling off its assets, settling debts, and distributing the remaining funds to the shareholders or owners. This process typically occurs when a company is no longer viable or is unable to pay off its debts.
Here is a table that outlines differences between Voluntary Liquidation and Involuntary Liquidation:
| Aspect | Voluntary Liquidation | Involuntary Liquidation |
|---|---|---|
| Initiation | Initiated by the company’s directors or shareholders. | Initiated by creditors or a court order. |
| Control | The company’s shareholders or directors retain control. | Control is taken over by a court-appointed liquidator or creditors. |
| Reason for Liquidation | Company’s desire to dissolve due to financial difficulties, lack of profitability, or to cease operations. | Company is unable to pay debts, and creditors or the court force liquidation. |
| Approval Process | Requires approval from the company’s shareholders in a general meeting. | No shareholder approval required, as it’s enforced by creditors or the court. |
| Types of Liquidation | Typically, members’ voluntary liquidation or creditors’ voluntary liquidation, depending on solvency. | Typically, court-ordered liquidation due to insolvency. |
| Speed of Process | The process tends to be quicker because it is planned by the company. | The process may be slower and more complicated due to legal involvement. |
| Cost | Costs are generally lower because it is a voluntary and planned procedure. | Costs are higher due to legal proceedings and court involvement. |
| Company’s Financial State | Voluntary liquidation is usually chosen when the company is solvent or minimally insolvent. | Involuntary liquidation typically occurs when the company is insolvent. |
| Stigma/Perception | Seen as a controlled, planned exit; may have less negative impact on reputation. | Often viewed negatively due to creditors forcing the company into liquidation. |
| Liquidator’s Appointment | The company’s directors usually appoint the liquidator. | The court or creditors appoint the liquidator. |
Legal Aspects of Business and Technology Questions with Answer – 2024 Fall (BBA/BBA-TT/BCIS) – Click here