Company Liquidation
Company liquidation is the formal process by which a company undertakes the closure process, sells the assets, and distributes the recovered proceeds to the creditors and shareholders. In most cases, there is a Company liquidation when a company becomes insolvent or is no longer viable as a business entity. The process entails winding up the company's affairs, including settling debts, selling the assets, and ascertaining compliance with all legal obligations.
Steps of CVL
Meeting by Directors: Directors acknowledge insolvency and offer liquidation.
Shareholder Resolution: Shareholders pass a resolution to liquidate through majority vote.
Liquidation Process: Assets are sold and debts are paid according to legal priority.
Closure and Dissolution: The company no longer exists legally.
Why Companies Liquidate
Market Changes: Influx of change in consumer tastes and demand or decline in industry
Poor Management: Wrong decisions pertaining to finance or business.
Legal Process: Action by creditors or government sanctions.
Voluntary Winding: Owners deciding to shut down a solvent business.
The liquidator and Liquidation
A liquidator is critical to the liquidation process. Some of their duties are:
Valuation and sale of company's asset.
Compulsory satisfaction of claims against the firm by creditors in a previously agreed order.
Investigating directors to satisfy the requirements of legal duties.
Submission of report and presentation of documents to government authorities.
The liquidator should always act without bias and with interest of the creditors at heart.
Effect of Liquidation
To Creditors:
Creditors can recover their proportionate claims to the available assets of the firm. In the first place, secured creditors normally get precedence and there may even be little or nothing for unsecured creditors.
On Directors:
Directors can be examined on cases of wrong trading or negligence. If they are held liable for the situation, they will be liable to disqualification or personal liability for company debts.
On Employees:
Workers are made redundant but can claim some statutory redundancy pay and other recompense through government departments.
Shareholders
The shareholders would ordinarily be paid only after satisfying all creditors. In liquidation after bankruptcy, they usually get nothing.
Options to Liquidation
The Companies may pursue other options before liquidating them; namely;
Agreed plans with the creditors to pay the debts over time.
Administration
Temporary reprieve from creditors allowing recovery plans.
Debt Refinance: Raising more finance to solve the cash flow problem.
Business Sale: Selling the business to a better operator who can strengthen the company.
These options might rescue the business and safeguard stakeholders.
Company Liquidation
Company liquidation is the formal process by which a company undertakes the closure process, sells the assets, and distributes the recovered proceeds to the creditors and shareholders. In most cases, there is a liquidation when a company becomes insolvent or is no longer viable as a business entity. The process entails winding up the company's affairs, including settling debts, selling the assets, and ascertaining compliance with all legal obligations.
Steps of CVL
Meeting by Directors: Directors acknowledge insolvency and offer liquidation.
Shareholder Resolution: Shareholders pass a resolution to liquidate through majority vote.
Liquidation Process: Assets are sold and debts are paid according to legal priority.
Closure and Dissolution: The company no longer exists legally.
Why Companies Liquidate
Market Changes: Influx of change in consumer tastes and demand or decline in industry
Poor Management: Wrong decisions pertaining to finance or business.
Legal Process: Action by creditors or government sanctions.
Voluntary Winding: Owners deciding to shut down a solvent business.
The liquidator and Liquidation
A liquidator is critical to the liquidation process. Some of their duties are:
Valuation and sale of company's asset.
Compulsory satisfaction of claims against the firm by creditors in a previously agreed order.
Investigating directors to satisfy the requirements of legal duties.
Submission of report and presentation of documents to government authorities.
The liquidator should always act without bias and with interest of the creditors at heart.
Effect of Liquidation
To Creditors:
Creditors can recover their proportionate claims to the available assets of the firm. In the first place, secured creditors normally get precedence and there may even be little or nothing for unsecured creditors.
On Directors:
Directors can be examined on cases of wrong trading or negligence. If they are held liable for the situation, they will be liable to disqualification or personal liability for company debts.
On Employees:
Workers are made redundant but can claim some statutory redundancy pay and other recompense through government departments.
Shareholders
The shareholders would ordinarily be paid only after satisfying all creditors. In liquidation after bankruptcy, they usually get nothing.
Options to Liquidation
The Companies may pursue other options before liquidating them; namely;
Agreed plans with the creditors to pay the debts over time.
Administration
Temporary reprieve from creditors allowing recovery plans.
Debt Refinance: Raising more finance to solve the cash flow problem.
Business Sale: Selling the business to a better operator who can strengthen the company.
These options might rescue the business and safeguard stakeholders.
Law and Regulatory Compliance
Liquidation is regulated by laws in every country. In the UK, for instance, the Insolvency Act 1986 provides guidelines on liquidation of various types. The directors and liquidators have to follow these laws to avoid arising liabilities.
