The term liquidation means the procedure in which the real assets of a business are turned into cash. This action takes place in order to clear debts of a business. Mainly liquidation of a business is categorised into two types such as: compulsory and voluntary liquidation.
Here is some information about the two types of liquidation:
Compulsory liquidation – This kind of liquidation occurs when the court has ordered the company to pay off their debts. In these cases, the court appoints an officer who will analyse the company’s assets. Firstly, the cash which is received by selling the assets is equally distributed amongst the debtors.
Voluntary liquidation – Voluntary liquidation is a type of liquidation which takes place when the shareholders of a company are prepared to sell their assets willingly. The only difference between voluntary and compulsory liquidation is that it is done without any court order or pressure.
In some cases, the parent or head company sells the assets of the sister companies in order to continue the operations of the company. In both cases, the assets are sold in one go, and often to dealers who specialise in purchasing liquidated items.
Many companies who opt for voluntary liquidation do so before the courts order them to do so.