What is company liquidation? If you are looking for a simple definition, it’s a process where a company goes through dissolution. The assets of the business are sold off and the payments are made to the creditors. In most cases, if a company is making profit, it won’t go through this process. However, in some cases, even solvent businesses have to choose this route. Let’s know more.
There are two major types of company liquidation. The first type is known as voluntary liquidation where this decision is taken by the shareholders or directors and the dissolution is carried out. If the members of the board decide to make this choice, they have to get most of the votes prior to proceeding. In the same way, if the shareholders want to go this route, they all have to do so prior to taking action.
Here it is important to keep in mind that voluntary company liquidation can be CVL or MVL if the company is insolvent. Members Voluntary Liquidation is done so as to carry out the termination of the company in an orderly fashion. In other words, it can be started if the business shareholders feel that the directors are not taking actions that are against their interests. For instance, the products or services of the business may not be attracting potential customers for some reasons. As a matter of fact, VL Is the best solution as far as avoiding the second type of liquidation is concerned. In this type, the court is not involved and the matter is solved outside of the court. The creditors are paid off in full by selling the company assets.
Another type is known as compulsory liquidation where the process is started by the creditors. The reason may be that the company fails to pay to the creditors. What happens is that the creditors get a court order in order to get the company dissolved. The cost of the court matters is born by the creditors. However, once the process is completed, they are the first party that gets paid. So, the extra cost is worth the reward.
Creditors that want company liquidation go to the court in order to get the assets of the business sold. This happens when the creditors feel that the directors of the company are not cooperative as far as paying debts is concerned. In most cases, the company is not forced to liquidate as the directors pay off debts due to the fear of losing the company.
This is another type where the purpose is to preserve the assets of the company that may be at risk. For this purpose, a good liquidator is appointed in order to protect the financial position of the business. On the other side, the petition of liquidation is taken into consideration by the court of law.