In addition, the term "liquidation" is sometimes used when a company wants to divest itself of some of its assets.
However, the law gives priority to secured creditors (those with a charge over some of the company's property as security for the debt).
In addition, a number of rules exist to prevent one or more creditors from gaining an unfair advantage.
If the company is solvent the shareholders can supervise the liquidation.
However, if the company is insolvent, the creditors may take control of the liquidation process by applying to the court.
The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.
Liquidation may either be compulsory (sometimes referred to as a creditors' liquidation) or voluntary (sometimes referred to as a shareholders' liquidation, although some voluntary liquidations are controlled by the creditors, see below).The liquidator represents the interests of all creditors.The liquidator supervises the liquidation, which involves collecting and realising the company's assets (turning them into cash), discharging the company's liabilities, and distributing any funds left over among the shareholders in accordance with the company's constitution (or the COMPANIES ACT 1993 if there is no constitution).The court may appoint an official receiver, and one or more liquidators, and has general powers to enable rights and liabilities of claimants and contributories to be settled.Separate meetings of creditors and contributories may decide to nominate a person for the appointment of liquidator and possibly of supervisory liquidation committee.It can take account of personal relationships of mutual trust and confidence in small parties, particularly, for example, where there is a breach of an understanding that all of the members may participate in the business, Upon hearing the application, the court may either dismiss the petition, or make the order for winding-up.