What Does the Term Liquidation Imply In Business?

A process in law, which enables the businesses to end their existence, and their activities, is termed as liquidation. All the assets of the business are disposed off to convert it into cash, so it can be used to pay off its dues to its creditors. The process is sometimes, also called dissolution of the company, or winding up of the company.

Liquation is an alternative for businesses, which are unable to pay their debts. The creditors take control of the assets of the company, and sell them off to get the maximum amount back that they can. They get first priority to whatever is sold off. Next in line are the shareholders who get whatever is left, with the preferred shareholders, having preference over common shareholders.

There are broadly two types of liquidation, compulsory liquidation, and voluntary liquidation. The liquidation would be termed as compulsory when the company is ordered by the court to pay off its debts by selling off its assets. The creditors, the company, or even the contributors whose due amounts are not paid by the company can file the request for such form of liquidation… The compulsory liquidation is termed as such, and it takes when the company cannot clear its debts by any other means, or when it is no longer profitable to keep the business running. Whereas, in the voluntary liquidation, it is the shareholders of the company who decides to wrap up the businesses of the company, and end its existence.

There are some steps to be followed in the liquidation process. First, a detailed inventory is taken of all the assets of the company, and it is categorised according to different types. In case of inventory, auctions can be held, in which items can be sold to the highest bidders. Liquid assets are easy to sell as compared to non-liquid ones. For example, plant, and machinery can prove to be difficult to sell at reasonable prices, and often, losses are incurred on them. Real estate can be sold through foreclosure auctions, or with the help of an agent.

For the purpose of liquidation, a liquidator, who is an expert in the matters of liquidation, is appointed; he is the one responsible for looking after all the legal requirements, and dealing with the creditors. All such assistances do not come free, and might end up costing you a lot. A rough estimate of the cost payable to the liquidator for wrapping up a small business is around 7,000.

There are some alternatives to liquidation, which should be considered before making this drastic choice. Sometimes, companies prefer to be simply struck off the Register, as this is a cheaper option. In this case, a request is made to the registrar to strike the name of the company off the register. The company can be added to the register again when it is in a good financial position. Phoenix is an option for businesses in the UK, which can allow them to have a fresh start. This process includes liquidating a company, and then resuming it under a different name. This allows the company to retain its customers, and suppliers.

Liquidation is a final step for any business, thus, it should be taken carefully. If you wish to continue your business in spite of your financial problems, it may be a better option to go for one of the alternatives mentioned above. However, if there is no other way to clear your debts, or you believe that the business is no longer viable, liquidation is the most suitable option.

Bobby Dazzler is a legal consultant. You can take his advice on company liquidation and protect yourself from your creditors. For more information visit his recommended website at http://www.beesley.co.uk.