When your business is not profitable anymore and you feel there is no way that insolvency can be prevented, you can liquidate the assets of the company and end it. This is called liquidation. However, before this process can be started, there are certain steps that need to be taken so that the directors of the company are protected.
When your business is not profitable anymore and you feel there is no way that
insolvency can be prevented, you can liquidate the assets of the company and end it.
This is called liquidation. However,
before this process can be started,
there are certain steps that need to
be taken so that the directors of the
company are protected.
Types of liquidation
There are 2 types of liquidation. Compulsory – where the creditors get a winding up order
and as a result the business is forced to be liquidated. The second type is Creditors
Voluntary. In this kind, the liquidation is voluntary and this is also the easiest method to
liquidate the company.
Creditors Voluntary Liquidation Services
Before starting this voluntary liquidation, you need to approach a practitioner who will
help you facilitate the process. The insolvency practitioner will have a meeting of the
creditors and during which a liquidator will be appointed. Normally the creditors
appoint someone as a liquidator who has been recommended by the directors. However,
if the bank is a major creditor, they may choose to appoint one from their panel. The
liquidator then sells the assets and uses the money to repay the creditors.
Creditor’s voluntary liquidation is expensive but this process is shorter and lesser of a
stress than the compulsory one. However, you can also go through different routes
before going in for liquidation. These routes are:
Alternative routes to liquidation
Pre-pack administration – where the assets are sold so that the funds are recuperated
and used to pay the debts. The company during the entire process can still operate. This
helps to preserve the integrity of the brand, retain contracts and employees.
Company Voluntary Arrangement is an arrangement that is proposed to the creditors. If
this arrangement is accepted, the debt of the company is alleviated to some extent. The
arrangement is such that monthly payments are spread out over a longer period.
Process when a compulsory liquidation is ordered
When the court orders the business to wind up, they appoint liquidators and a person
who acts as an Official Receiver. The process of valuing of the assets then begins as also
the marketing and selling of these assets. However, the creditors may decide that they
want to nominate another person as the liquidator and they may have a supervisory
liquidation committee appointed as well. In both these cases, the only option left to the
owner of the business or the directors are to get guidance from Insolvency
Practitioners Sydney so that the potential negative outcomes can be mitigated as a
result of this compulsory liquidation.
Liquidation of the company is never an option which is preferred by the owners or the
creditors but this sometimes is a necessity owing to the way the business is performing.