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? As any business entity or company comes to an end, it is crucial for it to have to go through the legal process called liquidation. 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. Other names for the process of liquidation include business dissolution as well as winding up.
Oftentimes, the process of liquidation is well known to some people as a bold choice that some business establishments make when they come to the point in their business that they can no longer keep up with their debts. It will then be the creditor who will be given some power what they want to do with all assets of the company. All these assets will then be sold by the creditor to interested buyers so that they can make as much money out of them. Usually, the creditors will take charge in the assets that they can sell coming from the company. If the creditors will have left something, the next in line who gets it will be the shareholders of the company. Mostly, the preferred shareholders will gain more favor from the what is left from the proceeds of the assets and the next ones are then the common shareholders.
There are basically two major kinds of liquidation. The two major types are called compulsory liquidation as well as voluntary liquidation. In compulsory liquidation, the court of the land is the one to make orders to the company to have their assets liquidated in order for them to pay off their debts to their creditors. On the other hand, in voluntary liquidation, the company, the contributors, or the creditors will be the ones to file a petition in the court of law for liquidation. This becomes a result if the company has debts that will wind up the company or cannot pay for the debts anymore. Typically, shareholders of the business entity get to have a say in voluntary liquidation for the company to be dissolved.
A lot of companies come to the point of not being able to pay off their debts when they have more competition or when there is a significant change in the market that they can no longer deal with. It is then expected that liquidation of the company will most likely take place. 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.