What Does Liquidation Of A Company Mean?

Liquidation can be stated as economic failure of a company, or a business. In the process of liquidation, the assets of the company are sold out to pay off its liabilities. The business has to be closed, and all the creditors are paid through the auctioned money. In simple words, it is inability of the company, or business to pay off its debt. Liquidation leads to bankruptcy, and mainly the bank takes control of the assets of the company. In the liquidation process, the banks, and other creditors always have the priority. Any asset of the company, which is sold out, the money, goes to these creditors. The second in the priority list are shareholders of the company. There are two categories of the shareholders; preferred, and common. The favoured shareholders are preferred over common shareholders.

The liquidation is of two types, compulsory liquidation, and voluntary liquidation. The compulsory liquidation is imposed by the court that orders the company to sell out its assets, and pay off the debt. In the voluntary liquidation, the company voluntary puts a petition in the court. This happens when the company knows that it cannot pay its debt, and has to close the business to pay off. All this happen because of the pressure of the creditors. The voluntary liquidation is possible with the help of shareholders, who after careful evaluation decide to wind-up the business.

Here we look into some grounds about compulsory liquidation. These grounds are imperative to apply for compulsory liquidation. In different jurisdictions, these grounds can be different. Below are general grounds, which enable a company to file an application to the court for compulsory winding-up:

* Company is an old public company. For Example, the one that has not re-registered as a public company, or become a private company under more recent legislation of companies requiring this.

* Company is an earlier civic corporation. For instance, the one that has not re-registered as a civic corporation, or become a non public corporation under latest statue of corporations requiring this.

* Company has not become operational within the statutorily agreed time (usually one year) of its amalgamation, or has not worked on business for a statutorily agreed period.

* The count of members has dropped below the least approved by law.

* Company is powerless to pay its outstanding amount, as they are anticipated.

In general, the immense majority of applications for obligatory winding-up are made as per one of the last two grounds. It is very comprehensible that order will not be made if the authentic reason of the application is other than for a winding-up, as the application is made just to put in force a debt.

When it comes to voluntary liquidation, if the company is solvent, and the members have made a statutory declaration of solvency, the liquidation will proceed as a voluntary winding-up. As a result, general meeting will appoint the liquidator(s).

At last, it is to bear in mind that the term liquidation is occasionally used when a business desires to separate itself for some of its assets. This happens when a retail establishment likes to shut down its store. They like to give this to a company that is adept in store liquidation, in spite of trying to manage a store closure sale themselves.

You can take a professional\’s advice on members voluntary liquidation and protect yourself from your creditors.