There are three types of Liquidation:
Creditors' Voluntary Liquidation (CVL): This type of liquidation occurs when a company is unable to pay its debts declares itself insolvent. The company’s assets are sold and any surplus is distributed to its members.
Members' Voluntary Liquidation (MVL): Shareholders of a solvent company and the directors of an insolvent company may also voluntarily choose to end up the business operations and extract the assets to pay off any outstanding debts.
Compulsory Liquidation: In case the creditors find out that the company in which they have invested their hard-earned money is incapable of paying them back they can force it to go into liquidation as a way of recovering the debt owed by knocking on the doors of the courts. When the courts’ decision is in favour of the creditors the company has to forcefully shut down its trading and liquidate its assets in order to repay the debts it owes to the claimants.