The Significance of Liquidation in Your Business

A lot of news regarding liquidation might have come across you as you carry out your daily business struggles such as that handled by Phillip Cochineas. What is basically the whole deal with liquidation and its real meaning? 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. Since most businesses liquidated have to deal with creditors, the assets that they have left off will be sold to another company or person and whatever proceeds are made out of it will be given straight to the creditors as payment. This is why some people refer to liquidation as winding up or having their business undergo dissolution.

Usually, liquidation is thought of as the choice that business owners make when they can no longer pay for their accumulating debts. Liquidation is thus done so that the control of the assets of the company will go to the creditor. What most creditors do is they sell them off so that they can make as much money from them as they can. Usually, the creditors will take charge in the assets that they can sell coming from the company. When there are remaining proceeds, the shareholders of the company will usually be the ones to get them next. Usually, the preferred shareholders get to have a say on what is left over the common shareholders.

If you talk about liquidation, it can go in two directions. The first one is what you call compulsory liquidation and the second one is what you call the voluntary liquidation. You call it compulsory liquidation when it is the court that will decide that a company must liquidate its assets and pay their creditors. Meanwhile, if you talk about voluntary liquidation, there is a filing of petition for liquidation in the court of law either done by the creditors, the contributors, or even the companies themselves. This becomes a result if the company has debts that will wind up the company or cannot pay for the debts anymore. Usually, the shareholders of the company are the ones that support its voluntary liquidation for the company to be dissolved.

If a company has debts that they cannot pay, they are most likely caused by a change in the market or an increase in competition. Company liquidation is thus bound to ensue. If a company closes because of liquidation, whatever debts the company has will all be forgotten. This then gives the directors another direction for their company just like what Phillip Cochineas did.