Liquidations have been described in law as the series of procedures wherein a company or part of it is put to a close and the assets related to its operations are sold to which funds are distributed to creditors and if there are any left to the shareholder.
In business it is the process of taking tangible corporate assets and turning them to cash often by selling them off often in order to pay a debt and sometimes for owner and shareholder gain. Such is done voluntarily and involuntarily. In the former, the directors themselves file for it while the latter is often forced by court through action of creditors.
The process for liquidations is a long one and should be taken seriously and carefully which often necessitates business owners to hire consultants, advisers and legal personnel to assist them in all matters regarding the action. To shed some light on the procedures involved below are some brief discussions about them.
- A meeting between the board of directors is held where a proposal regarding the move is brought up in the case of voluntary liquidations. For a compulsory one, a court order is necessary.
- When a mutual and joint decision or a quorum is reached and the company’s insolvency has been ascertained or the court has already passed an order, a liquidator will be appointed.
- The liquidator is an individual assigned to sell all assets of the business and use his or her assigned powers with due care and diligence in the best interest of all parties involved.
- Distribution is then performed in the following order:
- Payment for the expenses involving the liquidation including legal and professional fees.
- Salaries and wages of all company employees should be paid off.
- Next, the funds are then distributed to all creditors. If the asset sales are not enough then such will be distributed proportionately to distribute the losses fairly to all parties.
- If there is any left, it will then be distributed to the corporate shareholders.
- When such matters have been accomplished, a business is considered dissolved.
Now liquidation is a very painful thing to everyone concerned with the business from stockholders to founders to officers to employees and even to business suppliers and partners. However, when there comes a time when it is needed, it is best to do have one done so that you can move on with your life.