The Significance of Liquidation in Your Business
You might have heard on the business news how Phillip Cochineas has helped built back their company after facing serious liquidation issues. Now, why do you always hear liquidation and what does it mean? When a business is ending, it must go through the legal process of liquidation as it comes to an end. During this process, the assets of the company will be sold off to interested buyers and then the resulting proceeds will serve as payment for the creditors. Other names for the process of liquidation include business dissolution as well as winding up.
Most of the time, what people understand about the process of liquidation is that this is the option that some companies go to if they need to pay their debts. It will then be the creditor who will be given some power what they want to do with all assets of the company. All these assets will then be sold by the creditor to interested buyers so that they can make as much money out of them. Creditors are the first ones in line who will get the profit of the assets that are sold by the business. When there are remaining proceeds, the shareholders of the company will usually be the ones to get them next. Usually, the preferred shareholders get to have a say on what is left over the common shareholders.
If you talk about liquidation, it can go in two directions. The first kind of liquidation is what you call compulsory and the second kind of liquidation is what you call voluntary. In compulsory liquidation, the court of the land is the one to make orders to the company to have their assets liquidated in order for them to pay off their debts to their creditors. Meanwhile, if you talk about voluntary liquidation, there is a filing of petition for liquidation in the court of law either done by the creditors, the contributors, or even the companies themselves. This usually takes place among companies that can no longer afford paying for their debts or have debts that will just end up winding the company up. Most of the time, the decision to wind up and dissolve the company is all the doing of the shareholders of the company thus the need to have voluntary liquidation.
Not being able to keep up with the competition and the recent changes in the market are the two common reasons why companies can no longer pay their debts. These are just some of the reasons for wanting to liquidate one’s company. When a company is closed via liquidation, all outstanding debts will be paid off. This allows the directors of the company to look at other business chances just like what was done by Phillip Cochineas.