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. So, what is liquidation all about? When a business is ending, it must go through the legal process of liquidation as it comes to an end. Since most businesses liquidated have to deal with creditors, the assets that they have left off will be sold to another company or person and whatever proceeds are made out of it will be given straight to the creditors as payment. This is why some people refer to liquidation as winding up or having their business undergo dissolution.
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. For the assets of the company, it will be the part of the creditor to do something about them after the company has declared that they will have their assets liquidated. All these assets will then be sold by the creditor to interested buyers so that they can make as much money out of them. The first in line to get the proceeds of the assets sold off by the company are typically the creditors. When there are remaining proceeds, the shareholders of the company will usually be the ones to get them next. And then, even among shareholders, the ones that get more say about the remaining profit of the assets will be the preferred shareholders with only the common shareholders being next in line.
When it comes to liquidation, there are basically two major kinds of them. 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. Typically, shareholders of the business entity get to have a say in voluntary liquidation for the company to be dissolved.
A lot of companies come to the point of not being able to pay off their debts when they have more competition or when there is a significant change in the market that they can no longer deal with. These are just some of the reasons for wanting to liquidate one’s company. All of the outstanding debts of the company will be forgotten when it closes via liquidation. This allows the directors of the company to look at other business chances just like what was done by Phillip Cochineas.