Specifically for a limited company, Liquidation (also know as winding up)  in essence is the process for ceasing to trade, liquidate the assets, and the orderly winding up of a company.

There are 3 separate types of liquidation:-

Members Voluntary Liquidation (MVL)
Creditors Voluntary Liquidation (CVL)
Compulsory Liquidation (CL)

Whilst CL’s and CVL’s are procedures used for insolvent companies, an MVL can only be sought if a company is solvent, i.e. is in a position to pay all outstanding amounts due including payment to the company’s shareholders.

A director of the company has a duty of care to the company and its creditors. Whilst in general terms a Limited Company gives the directors the safety of limited liability, i.e. a company’s debts are owed by the company being a completely separate legal entity to that of its members or directors, in certain circumstances a director can be made personally liable for the companys' debts.

As soon as a company becomes insolvent it is imperative professional advice is sought to protect your personal position as director of that company.

Members Voluntary Liquidation (MVL)

In the majority of cases the shareholders of a company resolve to put the company into Members Voluntary Liquidation if they wish to cease the company and distribute the assets amongst themselves. An insolvency Practitioner will be appointed as Liquidator to administer the distribution of funds and assets in the most efficient manner.

Creditors Voluntary Liquidation (CVL)

Where a limited company or an LLP is insolvent, i.e. its assets are insufficient to meet its liabilities, and rescuing the company is not possible, then CVL is likely to be the best option. The directors instruct a licensed insolvency practitioner to prepare a statement of affairs of the company and convene meetings of shareholders and creditors to appoint a liquidator. Once a liquidator is appointed the directors responsibilities cease, although they have a continuing duty to cooperate with the liquidator. The appointed liquidator will deal with the realisation of assets, and after payment of costs, distribute any surplus funds amongst the creditors.

Compulsory Liquidation (CL)

A compulsory liquidation (also known as compulsory winding up) is initiated following a winding up petition being issued, normally by a creditor in respect of an unpaid debt, although a director of the company can also petition. The court may then make and order for the winding up of the company.
Initially the Official Receiver will be appointed to administer the winding up but in the event there are assets to realise, the Official Receiver may request the appointment of an Insolvency Practitioner as Liquidator to deal with the sale of assets and distribute any surplus funds, after costs, amongst the creditors.