Liquidation is when you dissolve all of your assets and shutdown the company, or you sell it off. In order for this to occur, shareholders or the court is responsible for hiring a liquidator, who will then take the interest of every creditor into account and administer the whole process of converting the resources into money. If the company can afford a lawyer, then it should hire an experienced commercial lawyer.
The work involves releasing the company from any legal responsibilities, and allocating the surplus funds among the shareholders according to the company’s policies.
There are three types of liquidation you can opt for:
- Member Voluntary
In this type of liquidation, a company is closed by its directors or shareholders in spite of having a huge amount of assets. The company is not bankrupt in this type of liquidation; therefore creditors are rewarded with full payment and the rest of the money is divided between the directors or shareholders.
- Creditors Voluntary
You can opt for this category if you are bankrupt and cannot pay the debts. Here, the company is liquidated in order to pay those debts. According to the creditor’s claim, equal distribution of assets occurs between creditors after the payment of debt, but secured creditors are given more importance by the law. Other laws are also in place to avoid unfair distribution.
- Court Liquidation
In this kind of liquidation, the directors and creditors request the court to appoint a liquidator for the company and it takes place in the occurrence of a bankruptcy. A court order is compulsory for court liquidation, and the application submitted by the creditor will include the debt that the company is facing.