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The Significance of Liquidation in Your Business

A lot of news regarding liquidation might have come across you as you carry out your daily business struggles such as that handled by Phillip Cochineas. So, what is liquidation all about? If you say liquidation, you are referring to a legal process that some business establishments go through if they need to put an end to their business. 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. 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. 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. In order for the creditors to receive money from these assets, they would rather have them sold to another company or person. Creditors are the first ones in line who will get the profit of the assets that are sold by the business. It will be the shareholders of the company next who will be getting the remaining proceeds from the assets sold and left off by the creditors. 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.

There are basically two major kinds of liquidation. The two major types are called compulsory liquidation as well as voluntary liquidation. 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. 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 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.

If a company has debts that they cannot pay, they are most likely caused by a change in the market or an increase in competition. 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. Like what Phillip Cochineas did, the directors of the company will be given better chances to be led to a better and brighter direction.

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