Liquidation may either be compulsory (sometimes referred to as a creditors' liquidation following bankruptcy, which may result in the court creating a "liquidation trust") or voluntary (sometimes referred to as a shareholders' liquidation, although some voluntary liquidations are controlled by the creditors).
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.
The liquidator has the power of the company and company employees are dismissed.
If it is a court-ordered liquidation, the court has the choice to stay or restrain any proceedings against the company when required.
The liquidator may also have to determine whether any payments made by the company or transactions entered into may be voidable as a transaction at an undervalue or an unfair preference.
The main purpose of a liquidation where the company is insolvent is to collect its assets, determine the outstanding claims against the company, and satisfy those claims in the manner and order prescribed by law.