The Significance of Liquidation in Your Business
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? If you say liquidation, you are referring to a legal process that some business establishments go through if they need to put an end to their business. 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.
Oftentimes, the process of liquidation is well known to some people as a bold choice that some business establishments make when they come to the point in their business that they can no longer keep up with 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. What most creditors do is they sell them off so that they can make as much money from them as they can. Creditors are the first ones in line who will get the profit of the assets that are sold by the business. 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 one is what you call compulsory liquidation and the second one is what you call the voluntary liquidation. 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. It is very much different with voluntary liquidation as there is still a need to file a petition for liquidation to the court of law as done by either the contributor, the company itself, or the creditor. This becomes a result if the company has debts that will wind up the company or cannot pay for the debts anymore. Typically, shareholders of the business entity get to have a say in voluntary liquidation for the company to be dissolved.
A lot of companies come to the point of not being able to pay off their debts when they have more competition or when there is a significant change in the market that they can no longer deal with. It is then expected that liquidation of the company will most likely take place. All of the outstanding debts of the company will be forgotten when it closes via liquidation. Like what Phillip Cochineas did, the directors of the company will be given better chances to be led to a better and brighter direction.