Liquidation
If a company is unsuccessful in its operations, or if for any other reason it decides to go out of business, it goes into liquidation. There are two kinds of liquidation – voluntary and compulsory.
Voluntary liquidation may be brought about by the shareholders passing a resolution directing the company to go into voluntary liquidation. When this happens one or more liquidators are appointed whose duties are to realize (to sell) the assets, pay all liabilities, and distribute the balance assets of the company, if any.
Compulsory liquidation can be brought about for a variety of reasons connected with the failure to fulfil the rules laid down by the Companies Act. But a company is usually compulsorily liquidated by order of the court given on a creditor's petition, when the creditor is unable to obtain satisfaction of his debt from the company.
When a winding-up order is granted by the court, the directors are deposed, the employees of the company receive notice that their agreements with the company are at an end, and the company's business is stopped.
Whatever assets remain after the claims of all the creditors have been settled, will be distributed among the shareholders in accordance with the rights carried by their shares.