Everything You Need to Know About Liquidation
You might have heard on the business news how Phillip Cochineas has helped built back their company after facing serious liquidation issues. What is basically the whole deal with liquidation and its real meaning? As any business entity or company comes to an end, it is crucial for it to have to go through the legal process called liquidation. Once a business is liquidated, all of its assets will be sold to other people and companies and the proceeds will immediately go straight to the creditors to pay them. The process of liquidation is also referred as business dissolution or winding up.
Usually, liquidation is thought of as the choice that business owners make when they can no longer pay for their accumulating debts. Liquidation is thus done so that the control of the assets of the company will go to the creditor. In order for the creditors to receive money from these assets, they would rather have them sold to another company or person. 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. Mostly, the preferred shareholders will gain more favor from the what is left from the proceeds of the assets and the next ones are then the common shareholders.
There are basically two major kinds of liquidation. The two major types are called compulsory liquidation as well as voluntary liquidation. You call it compulsory liquidation when it is the court that will decide that a company must liquidate its assets and pay their creditors. It is very much different with voluntary liquidation as there is still a need to file a petition for liquidation to the court of law as done by either the contributor, the company itself, or the creditor. This is the most likely scenario if a company has debts that are prone to winding up the company or if the company cannot anymore pay off their existing debts. Typically, shareholders of the business entity get to have a say in voluntary liquidation for the company to be dissolved.
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. Company liquidation is thus bound to ensue. 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.
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