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What Happens When a Company Needs to Liquidate?
A voluntary liquidation is an orderly end-of-year wind-down and liquidation of a business which has already been authorized by its creditors. Such a measure will normally take place when the leadership of a business decides that the business has no longer any business reason to continue running. It is an ordinary business bankruptcy. Such wind-down procedures can be carried out for various reasons:
In order to understand why voluntary liquidation will take place, it is essential to have an understanding of the process involved in voluntary liquidations. Basically, the company administration will carry out a review of the company and make recommendations to the shareholders as to the best way forward for the business. In most cases, such resolutions will not be successful because the administration will be unable to come to an agreement as to what should be done with the company. The option of voluntary liquidation has been introduced to ensure that companies can be brought into line with their creditors.
In order to know the purpose of a voluntary liquidation resolution, it is essential to first of all have an idea of what liquidations are and what the procedure is. Voluntary liquidations are a result of the inability of a business to pay off its debts to its creditors. This inability may be voluntary or could be due to events beyond the control of the business itself such as insolvency. For instance, it could result from taking loans from people whom you do not really know if they can pay them back or from selling assets that you cannot sell on, like office furniture or office equipment which are beyond repair.
The voluntary liquidation process will generally start by a winding up petition being made against the business. This is where a group of directors will meet and decide that it is in the best interests of the business to wind itself up. When the creditors get a chance to hear what is going on, they will be able to make offers to the creditors. The offers could vary from one creditor to another, but the main consideration is that the offers should be acceptable to the directors. If possible, it is always better for the creditors to receive some payment from the business’ directors than for the business itself to shut down.
Once the winding up petition has been granted, it will be time to make an appointment with the creditors. The aim of the meeting is to determine whether any voluntary liquidations may be possible. Once the creditors have had an opportunity to meet and speak with the company’s directors, it is then possible to discuss what options are available. The creditors might be prepared to accept some percentage of the debt, based on the seriousness of the debt. They will also want to be paid the full amount without having to go through the entire process of winding up.
The number of voluntary liquidations may happen at different times during the company’s history. Sometimes the company needs to make a big acquisition, or it is involved in litigation. In cases such as these, the voluntary liquidations may happen sooner rather than later.
At this point, the company can choose to settle its debts in full or elect to liquidate the assets and pay off a portion of its debts. Some directors may prefer to go the quiet way and leave the business. However, other more aggressive directors may wish to bring the entire enterprise into the family. It can be much harder to deal with aggressive directors in the past when no one knew how the business worked, and the directors did not engage in the usual conduct for starting a new business in an already existing business.
For a business to be successful, it must operate profitably. If the business does not make enough money, there could be serious problems. In addition to needing to pay debts, the business may need to raise capital to pay wages and buy equipment. When operating a business without enough cash flow, it becomes necessary to engage in the involuntary process of liquidation. There are many aspects to consider when thinking about whether voluntary liquidation may be an option for your business.
Umar Nisar was born and raised in the busy city of Abbottabad. As a journalist, Umar Nisar has contributed to many online publications including PAK Today and the Huffing Post. In regards to academics, Umar Nisar earned a degree in business from the Abbottabad UST, Havelian. Umar Nisar follows the money and covers all aspects of emerging tech here at The Hear Up.
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