Business liquidation is a legal process in which a company is brought to an end. The process of liquidation is characterised by the selling of assets, and the cash obtained via this method is then used to pay off creditors. This procedure is also known as dissolution of business.
Liquidation can be a good solution for businesses, as they can pay off any outstanding debts. Creditors gain control of the assets which used to belong to the company. Creditors will sell the assets.
Liquidation can be classified into one of the two following types:
• Voluntary
• Compulsory
Compulsory Liquidation – This type of liquidation occurs when the court orders a business to liquidate its’ assets and pay off creditors. The organisation has no say in this particular type of liquidation and is forced to comply with the court orders. Failure to do so can lead to further legal problems for the organisation.
Voluntary Liquidation – On the other hand, voluntary liquidation is initiated by the shareholders themselves. The shareholders take the final decision in winding up the company. Several reasons, such as poor performance and poor sales, may lead to voluntary liquidation.
Some of the steps to be followed in liquidation are as follows:
• Preparing a detailed inventory of the assets of the organisation
• Categorising the inventory according to different types of assets
• Auctioning the assets if required
Business liquidation is a good way of dissolving a business legally in the event of business failure.