Has your company not been very successful? Not giving you enough money? If so, you may be thinking of liquidating it. But before you do, you need to understand what this process is all about. Let’s know more about it.
When it comes to settlement, you may want to answer a few basic questions first. For example, you need to find out what it is and why business owners should consider this process. As the name suggests, it involves the conversion of a company’s assets into cash so that loans can be repaid. This is a simple definition of the term.
Types of liquidation of companies.
There are two ways that companies enter this process: voluntarily and compulsively. In the latter case, the process begins when a creditor files an application for business assets to be sold to pay off debts.
forced liquidation
Once a petition is filed, it will not be taken as a shortcut to clearing the company’s debts. Instead, the court must be assured that the other options to pay the debts have been used and that the only way to pay the rest of the debts is to liquidate the company. Some good reasons may be unpaid taxes, excessive amounts of liabilities, and outstanding debts. In case of forced liquidation, the company passes under judicial administration to a liquidator or official trustee. Subsequently, they will begin the process of appraisal and sale of the company’s assets.
voluntary liquidation
Unlike the compulsory option, this type of settlement is a rather relaxed way of the process. The reason is that the process works according to a plan and the directors of the company are in charge of the whole process. What happens is that the assets are sold by the directors so that all parties are satisfied. The process is relaxed because the court is not involved.
There can be many reasons for the voluntary closure of a business. For example, the business may not be making enough profit or may not have registered under the law. In reality, in this form of liquidation a preventive measure is taken against the company.
after settlement
Once the liquidation has been done, the company will no longer be there and all debts will be paid. Sometimes directors may also have to pay creditors out of pocket. Directors are generally not liable for a company’s debts, but there are exceptions to this rule. For example, directors have to pay if the company goes into debt because of them. This can happen when directors decide to deal when the business is insolvent and do not take adequate steps to mitigate it. However, the director can reduce the risk of litigation if he purposefully appoints a good bankruptcy agent to handle the process.
So, if you’re going to liquidate your business, be sure to consider the advice in this article.
