Kiely Rowan plc the company which owns the business of Irish designer Orla Kiely went into liquidation last week. The retailer closed its online shop as well as one in Kildare Village and two in London. This is very sad for the employees and customers of Orla Kiely as well as her creditors.

However, what does it mean when one hears that a company has gone into liquidation?

There are two types of liquidation, firstly there is what is known as a Court or Official liquidation. This is forced upon a company by creditors who apply to the High Court to appoint a liquidator. This is usually after directors of a company have ignored for many months (and sometimes years) that creditors were building up with no real chance of them ever being paid. Eventually a creditor finally loses patience and files a Petition in Court to liquidate the company. This has very negative connotations and reflects very badly on the directors of the Company.

The other type of liquidation is a voluntary liquidation which is very different. This is a process where the directors decide that it would not be prudent to continue trading. The directors meet and consider the accounts and if they see that turnover and/or profit are diminishing (for whatever reason) and that it is only a matter of time before creditors or employees run the risk of loss or further loss and they make a positive decision to appoint a liquidator themselves.

In certain circumstances, this can be seen as a more constructive process in that the assets of a the company vest in the liquidator who can realise them for the benefit of creditors and employees. The process is very formal and structured and the liquidator’s role is to ensure at least some payment is made to each class of creditors.

So does the voluntary liquidation of Kiely Rowan plc mean that Orla Kiely has to pack her bags?

Not necessarily. Firstly, Orla Kiely’s home and licensing business is not affected by the liquidation. Secondly, the assets of a company in liquidation are usually sold by the liquidator to the highest bidder. If this sale is to shareholders or directors of the company it must be on notice to the creditors. Orla Kiely might be the highest bidder for the assets of the company and so a new business could emerge from the liquidation. The sale of assets would provide funds in the liquidation for a distribution among creditors (albeit a very small dividend is the most unsecured creditors could expect) and the fundamental business of the company could survive in another guise.

One would not be surprised to see Orla Kiely’s fashionable designs re-emerge sometime soon.