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ACCA Applied Skills · Corporate and Business Law (Global) · Insolvency and administration

Marlow Ltd is insolvent and its directors are considering whether the company should enter liquidation. Which statement correctly describes the key difference between compulsory liquidation and creditors' voluntary liquidation?

Compulsory liquidation starts with a court order, normally on a petition, while creditors' voluntary liquidation starts with a resolution of the members of an insolvent company. Creditors then take over the choice of liquidator in the voluntary route.

  1. ACompulsory liquidation is started by a court order, whereas a creditors' voluntary liquidation is started by a resolution of the membersCorrect
  2. BCompulsory liquidation is only available for solvent companies, whereas creditors' voluntary liquidation is for insolvent ones
  3. CBoth are started by a court order but differ in who appoints the auditor
  4. DCreditors' voluntary liquidation requires a court order, whereas compulsory liquidation requires a members' resolution

Explanation

Compulsory liquidation follows a court order, usually on a creditor's petition. Creditors' voluntary liquidation begins with a members' resolution for an insolvent company, after which the creditors take control of the process. Compulsory liquidation is not limited to solvent companies, so the second option is wrong.

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