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Important Liquidation Facts and Tips

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? 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.

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. 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. 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.

There are basically two major kinds of liquidation. The first kind of liquidation is what you call compulsory and the second kind of liquidation is what you call voluntary. It will be the power of the court to order a compulsory liquidation among business establishments if they need to liquidate their assets so that their creditors can be paid off. 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 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. 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. If a company closes because of liquidation, whatever debts the company has will all be forgotten. This then gives the directors another direction for their company just like what Phillip Cochineas did.