If a company is facing financial difficulties, and can’t stabilise, it needs to take action as soon as possible.
When many companies find themselves in this situation, they often opt for liquidation, rather than bankruptcy. Liquidation involves a company’s assets being converted into capital. This money is then used to repay their debts.
Two kinds of liquidation:
Voluntary liquidation and compulsory liquidation are the two main types of liquidation.
Compulsory liquidation – Compulsory liquidation is ordered by the courts. Creditors of a bankrupt company file for compulsory liquidation when they want to get their investments back from the company in the form of cash. This is done by selling off the company’s assets.
Voluntary liquidation – Companies choose this form of liquidation when business is no longer profitable. By going through voluntary liquidation, a company is able to sell their assets and pay off their creditors.
Although it may seem like a great alternative to bankruptcy, liquidation is not a decision that should be made lightly. It needs careful consideration and the help of highly trained liquidation professionals in order to get the best end result.