Liquidation is usually the legal closing down of a business which may be solvent or insolvent. Liquidation may occur following a receivership or administration.
Alternatively, the company's directors or shareholders may recommend that the company be put directly into liquidation via either a Creditors Voluntary Liquidation (CVL) or a Members Voluntary Liquidation (MVL) or a Court can make a winding-up order for a compulsory liquidation on the petition of a creditor or the company itself.
If the company is insolvent and can no longer pay its way and continue trading, it could enter into a Creditors Voluntary Liquidation or Compulsory Liquidation. In simple terms this is the corporate equivalent of bankruptcy. In some cases, the loss making entity can be closed allowing the assets and often the employees, to be transferred to a new, viable company (see also Pre-Pack Administration and Pre-Pack Liquidation).
Another type of liquidation occurs where the company is solvent but circumstances dictate that it should be wound up - a Members Voluntary Liquidation (MVL). This could occur for example where the purpose for which the company was created no longer exists, or for tax planning reasons.