The Significance of Liquidation in Your Business
If you part of the business industry, there is no doubt that you have encountered the name Phillip Cochineas in one of your readings as being linked to the liquidation of his company and is now building it back. So, what is liquidation all about? 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. The process of liquidation is also referred as business dissolution or winding up.
Most of the time, what people understand about the process of liquidation is that this is the option that some companies go to if they need to pay 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. In order for the creditors to receive money from these assets, they would rather have them sold to another company or person. Creditors are the first ones in line who will get the profit of the assets that are sold by the business. 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 kind of liquidation is what you call compulsory and the second kind of liquidation is what you call voluntary. 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 usually takes place among companies that can no longer afford paying for their debts or have debts that will just end up winding the company up. Most of the time, the decision to wind up and dissolve the company is all the doing of the shareholders of the company thus the need to have voluntary liquidation.
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. Company liquidation is thus bound to ensue. When a company is closed via liquidation, all outstanding debts will be paid off. This allows the directors of the company to look at other business chances just like what was done by Phillip Cochineas.