When you want to close down your business, liquidation takes place in order to convert your assets into cash and pay off any outstanding creditors such as loans used to grow your business. The liquidation process then puts an end to the company’s existence along its activities and covers any debts especially if the company is insolvent.
Reasons Why a Company Decides to Liquidate its Assets
Insolvency is one of the reasons why a company would opt to liquidate its assets. Insolvency means that the company has lost its capacity to settle payments when they are due. The liquidation of a company turns all the business assets to cash to settle these payments.
If the company is insolvent, a liquidator can control and perform the liquidation process then dissolve the company. The remaining assets will be sold to pay off outstanding creditors and any remaining amount will then be distributed to shareholders if applicable.
Kinds of Liquidation
Liquidation takes place in any of these three circumstances with different processes to follow:
Members’ voluntary liquidation
For some reasons, the owner might decide to close down his or her company. In this case, the business owner still has the capacity to settle payments on time but chose to dissolve the business.
Creditors’ voluntary liquidation
This kind of liquidation takes place when the director of the company realises that the business does not have the capacity to settle its debt anymore. If the majority of the shareholders vote to liquidate, the liquidation process can start.
Compulsory Liquidation
Compulsory liquidation happens when the company has no capacity to settle its debts and the director applies and requests the court that the liquidation process should take place.
In a nutshell, the liquidation of a company could provide the best solution to settle any debts and claims to outstanding creditors. Furthermore, the right liquidator ensures that the liquidation process is properly managed to achieve the desired results.
If you are looking for a liquidator to perform the process of liquidation of your company, the liquidators of Infinity Asset Solutions can help you.