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Understanding Insolvency and Liquidation

Liquidation is basically the process of turning a company’s hard assets such as buildings, furniture, patents, and copyrights into cash. This process is done so that the company can use the cash to either pay off existing debt or to reap a personal benefit. There are three different types of liquidation that include members’ voluntary, creditors’ voluntary, and compulsory liquidation.

Members’ voluntary liquidation happens when the shareholders of the company decide to put it into liquidation and the assets positively outweigh the debts, which means the company is solvent. Creditors’ voluntary liquidation is when the shareholders of the company have decided to put it into liquidation and the debts outweigh the assets, this means that the company is insolvent. This is one of the most common types of liquidation.

The last type of liquidation is compulsory liquidation which is when a court orders a receiver or liquidator to analyze a company’s assets and decide which is the most fair way to divide in order to pay off debts. Before a company goes in to liquidation it is important that the director insures that all trading has ceased so that the company does not get in to even more credit issues.

Directors are required to hand over control to official receivers (ORs) or liquidators who are able to tell a company’s creditors and contributors including shareholders that the company is being liquidated. Liquidation is usually not a good sign but it doesn’t always mean the end. There are some alternatives that may be available instead of liquidation so explore your options.

Bankruptcy is generally a term that is used for individuals while insolvency is more often applied to businesses. If an individual or business is unable to meet the financial obligations and is no longer able to function because their cash flow has reached a point where their liabilities are greater than their assets.

Written by Carlos Sternson. Find the latest Insolvency or find out more information on Liquidation URL.

This article is free for republishing
Source: http://www.financealley.com/article_209284_76.html


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