This is the procedure appropriate for limited companies. When a company is wound up its assets are liquidated converted into cash in order to repay its liabilities. After this the company will cease to exist.
In most cases, the company to be wound up will have more liabilities than assets i.e. it is insolvent, which means that some creditors may not recover all of their debt. The proceeds from the sale will first go towards the costs of carrying out the winding-up then the remainder will be distributed to the creditors ranked in order as below in proportion to the amounts owed to them. This means that hopefully at least parts of the debts are paid off before the company is extinguished. The creditors will rank in the order of 1 preferential creditor, 2 secured creditors and 3 unsecured creditors. Unfortunately, in some cases, there may not be sufficient assets for a significant distribution or to discharge any liabilities at all.
It is therefore important to have a general idea about the company’s assets which may include book debts, stock and property and liabilities before proceeding with a winding-up petition.
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