Liquidation of a company – also known as winding up – means a liquidator is brought in to sell off and realise assets, pay creditors, and wind up the business in an orderly, cost-effective way.
During the process, the control of business assets, operations, and financial affairs transfers to the liquidator, and bank accounts are frozen and employees might be terminated. Liquidation is not to be confused with bankruptcy, which applies only to individuals.
If it's an insolvent business, the liquidator will investigate what went wrong. In these cases the liquidation process is typically initiated via a court order the company for a creditors' voluntary liquidation. Liquidation might be the only solution for companies that can't pay their debts. In rare cases the liquidator could decide to continue trading the business for a short period if it's in the best interest of the creditors.
Although liquidation is an insolvency procedure, solvent companies can utilise it voluntarily to permanently shut down the business in an orderly manner – via a members' voluntary liquidation. This can be a tax efficient way of distributing pre CAT distribution to shareholders tax free.