DEFINITION of 'Voluntary Liquidation'

A corporate liquidation that has been approved by the shareholders of the company. Voluntary liquidations stand in contrast to involuntary liquidations, which are a result of Chapter 7 bankruptcy. The shareholder vote allows the company to liquidate its assets to free up funds to pay debts.

BREAKING DOWN 'Voluntary Liquidation'

Voluntary liquidations in the UK are divided into two categories. One is the creditors' voluntary liquidation, which occurs under a state of corporate insolvency. The other is the members' voluntary liquidation, which only requires a corporate declaration of bankruptcy. Under the second category, the firm is solvent, but needs to liquidate their assets to meet their upcoming obligations.

Voluntary liquidation can also happen if a vital member of the organization leaves the company and the shareholders decide not to continue operations.

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