Has your business not been very successful? Not making enough money for you? If so, you may be thinking of liquidating it. But before trying, you need to understand what this process is. Let’s learn more about it.
When it comes to settlement, you may want to answer a few basic questions first. For example, you need to find out what it is and why business owners should consider this process. As the name suggests, it involves converting a company’s asset into cash so that credits can be paid off. This is a simple definition of the term.
Types of business liquidation
There are two ways that companies enter this process: voluntarily and compulsorily. In the latter case, the process begins when a creditor files a petition to sell the business assets to pay off debts.
Once a petition is submitted, it will not be taken as a shortcut to pay off the company’s debts. Instead, the court must ensure that the other options have been used to pay off the debts and that the only way to pay off the rest of the debts is to liquidate the business. Some good reasons may be unpaid taxes, excessive liabilities, and outstanding debt. In the event of forced liquidation, the company goes bankrupt by an official liquidator or trustee. Subsequently, they will begin the process of valuation and sale of the company’s assets.
Unlike the mandatory option, this type of settlement is a fairly relaxed form of the process. The reason is that the process works based on a plan and the directors of the company take care of the whole process. What happens is that the directors sell the assets so that all parties are satisfied. The process is relaxed because the court is not involved.
There can be many reasons for the voluntary closure of a business. For example, the business may not be making enough profit or may not have been registered in accordance with the law. Actually, in this form of liquidation, a preventive measure is taken against the company.
Once the liquidation has been made, the business will no longer be there and all debts will be paid. At times, directors may also have to pay creditors out of their pockets. Directors are not generally liable for a company’s debts, but there are exceptions to this rule. For example, directors have to pay if the company gets into debt because of them. This can happen when directors decide to negotiate when the business is insolvent and do not take adequate steps to mitigate it. However, the principal can reduce the risk of litigation by purposely appointing a good insolvency agent to handle the process.
So if you are going to liquidate your business, be sure to consider the advice given in this article.