There are many reasons for a firm to go bankrupt and liquidate its assets. But in all cases of bankruptcy, liquidation is mostly the only way out of the tight situation. Especially so in case the person filing for bankruptcy is moving on to a new location. The selling of goods and other assets will be cheaper than relocating them.
What is liquidation?
When a firm or an enterprise goes bankrupt or is terminated, the selling of its assets and paying the amount received to the creditors is called liquidation. The money that is left is distributed among the shareholders. In a majority of cases, the creditors try to liquidate in such a way that they get maximum money out of it. Preferred shareholders get priority in having the remaining money than the common shareholders.
Types of Liquidations
When you want to liquidate your company, there are two major types of liquidation you can resort to.
1. Creditors voluntary liquidation (CVL) – This is a category wherein the liquidation is chosen unanimously by you and the shareholders of your company due to the inability to pay off the debts owed. When agreed to unanimously, the company will stop operating and wound up.
2. Members’ voluntary liquidation (MVL) – Though your company is able to pay off the debts, you still want to close the company.
Process of Winding Up
To wind up the company officially, you need to arrange for a shareholders’ meeting. The shareholders should vote a minimum of 75% in favor of the resolution for wrapping up. In case the resolution is successful, you should take care of the following.
- Assign the authority over to an insolvency practitioner to act as liquidator and execute the liquidation
- A written resolution should be sent within 15 days to the regulatory body
- The liquidation should be announced formally
- The responsibilities held by you as director of the company will be altered
Role of Liquidator
Once you handover the liquidation process to the liquidator, the control of the business will be taken over from the board of directors by the liquidator. Any outstanding contracts or legal disputes will be dealt with by them. The assets of the company will be sold off and the money received as a result would be paid to the creditors.
The liquidator company also oversees the paperwork and meets the deadlines correctly and informs authorities on the proceedings. The job of meeting the creditors and negotiating with them for a settlement also falls on the liquidator. Filing a report on why the business had failed and removing the company from the Register of Companies is also taken care of by the liquidator.
Choosing a Liquidator
To ensure that the process of liquidation goes well, you need to choose the right liquidator. The three key factors you should look into include the experience of the liquidator, the areas they specialize in, and the fees they charge for the services they render. You can always search online for the best liquidator available.
Liquidation is a process that needs to be done with care or you may end up in a direr situation than you started with. Ensuring that you know about the entire procedure will help in dealing with it appropriately.
James Patrick teaches you the precise method of dealing with the process of liquidation. Though he recommends creditors voluntary liquidation as his favorite, he insists you getting a better understanding about the procedure involved.