The Significance of Liquidation in Your Business
A lot of news regarding liquidation might have come across you as you carry out your daily business struggles such as that handled by Phillip Cochineas. So, what is liquidation all about? 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. During this process, the assets of the company will be sold off to interested buyers and then the resulting proceeds will serve as payment for the creditors. The process of liquidation is also referred as business dissolution or winding up.
Usually, liquidation is thought of as the choice that business owners make when they can no longer pay for their accumulating debts. It will then be the creditor who will be given some power what they want to do with all assets of the company. What most creditors do is they sell them off so that they can make as much money from them as they can. Usually, the creditors will take charge in the assets that they can sell coming from the company. It will be the shareholders of the company next who will be getting the remaining proceeds from the assets sold and left off by the creditors. 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. You call it compulsory liquidation when it is the court that will decide that a company must liquidate its assets and pay their creditors. 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 becomes a result if the company has debts that will wind up the company or cannot pay for the debts anymore. Usually, the shareholders of the company are the ones that support its voluntary liquidation for the company to be dissolved.
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. Company liquidation is thus bound to ensue. All of the outstanding debts of the company will be forgotten when it closes via liquidation. This allows the directors of the company to look at other business chances just like what was done by Phillip Cochineas.