Is your business going through a rocky path lately? Have you and your business partners decided to bring it to an end or shut it? In that case, it is time for you to hire a professional to get liquidation advice and eventually liquidate your business!! Are you wondering what liquidation implies? Keep reading through to have an in-depth understanding.
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What is liquidation?
Liquidation is a financial process in which the business is brought to an end, and its assets are distributed among the claimants. The liquidation process is generally carried out when the company is unable to pay its due obligations, or it is insolvent. By ending all the operations of the business, the associated assets are used to pay creditors and shareholders. The liquidation process also allows the business owners to turn their assets into cash for paying off the company’s existing debts.
Why do business owners opt for liquidation?
The prominent reason why business owners or partners choose to get liquidation advice from industry experts and opt for liquidation is due to insolvency. This is a state where the business no longer makes the necessary payments wherever due. Business insolvency also indicates that it is no longer making any profits. During the liquidation of a firm, business entities get their assets turned into cash and pay off their debts. Along with liquefying the business assets, business liquidation also involves the selling of inventory, usually at steep discounts.
How are assets distributed during liquidation?
Secured Creditors
The assets of a company being liquidated depend on the priorities of the claimants. The most senior claims belong to the secured creditors having collateral on business loans and other associated fundings. Due to the restricted time offered in the liquidation process, the lenders prefer to sell the collaterals at a significant discount. If the collateral covers the debts, the company is declared debt-free. On the other hand, if the collateral does not cover the debt, the lenders recover the remaining cost from the company’s remaining liquid assets.
Unsecured Creditors
The unsecured creditors include bondholders, government(owing taxes), and the employees(awaiting their wages and other obligations).
Shareholders
In the end, shareholders get the remaining assets if there are any. In these circumstances, investors in preferred stock have priority over holders of common stock.
How much time does it take to liquidate a company?
If you are wondering whether only bankruptcy can lead to liquidation, you must be assured that this is not always the case. Solvent companies can also file liquidation in certain scenarios.
The time taken in the liquidation process is dependent on the type of liquidation. However, usually, the time taken is between 2 to 3 weeks after appointing the insolvency practitioner. Until all the legal formalities are completed, the liquidator remains responsible for overseeing the process in its entirety.
Hire a reputed liquidation company to carry out the company liquidation process smoothly!
