It can be disheartening to end your business. On the other hand, you may be ready to move onto something new in your life whether it is retirement or a new company. Business liquidation is the process of bringing a business to an end. You must distribute its assets to claimants. In general, liquidation occurs when a company is insolvent. In other words, when a company cannot pay obligations that are due, they will liquidate. When the business has no other means of survival, liquidation is truly the only option. There are three types of liquidation. An expert consultant can help you with every type of liquidation process.
An Easy Exit Strategy
If your company cannot pay its debts, liquidating your business assets can help pay it off. When you are in business, it is very easy to accrue debt. Operational costs, product costs, service costs, and other expenses quickly add up. In the first three years, if you do not have the financial backing, it is very common for a business to come to an end. The first three years of any business are the most crucial ones. Are shareholders, claimants, and creditors knocking at your door? Effectively dissolving the company can help both small and large businesses. Business liquidation is an easy exit strategy for your business when it is no longer profitable.
Get Expert Advice
There are many laws around the birth of a company as well as the end of a company. When your company is insolvent, you should get expert advice. Experienced professionals that are educated in company liquidation can help lead you in the right direction. Typically, the law requires the directors and owner to act in the best interest of the creditors, claimants, and shareholders. You must maximise the creditors interests. Your decisions and future actions should prioritise benefiting the creditors and claimants. When you do not know how to do so, a professional can help you with the law or how to make decisions properly. It is an exhausting and stressful process. A professional can help liquidate your company and alleviate as much stress as possible.
How to Look for Expert Advice
There are many scams and poor quality companies offering help with liquidation. You should never ask legal advice from an unlicensed professional. For example, your family member, friend, or a guy you met at the bar might tell you their advice, history, and what you should do to liquidate. While they may have good intent, it can truly hurt you in the eyes of the law. You do not want to take legal advice from a friend or family member. If the advice does not feel right, it probably is not right.
You should start looking for a reputable company that is experienced in company liquidation. While you are looking for help, you should also bring your directors into the decision. They will also want to be protected under the law. While you are looking for expert advice, you will also want to work out your daily cash flow using a cash flow model. This model can help the expert make decisions in regards to liquidation.
Three Types of Liquidation
There are three main types of liquidation. Each type of liquidation is used for a wide range of purposes. The three main types of liquidation include:
- Compulsory Liquidation
- Members’ Voluntary Liquidation
- Creditors’ Voluntary Liquidation
Creditors, lenders, claimants, or shareholders may petition to liquidate a business when the business’ debts are not paid within a short period of time. This is called compulsory liquidation. Compulsory liquidation forces a company to quickly sell off its assets. As stated previously, when your company is deemed “insolvent”, it is no longer profitable. Creditors, lenders, claimants, and shareholders will see your company is insolvent, and they will plan how to collect what money is owed quickly. When you cannot pay your debts quickly or in a timely manner, they will petition for your company to liquidate to recoup their loss. Compulsory liquidation is a frustrating process, but like any liquidation process, you must keep the best interest of your creditors, lenders, claimants, and shareholders.
Members’ Voluntary Liquidation
If the owner or co-owners want to dissolve or exit the company, they may volunteer to liquidate it. For example, if you no longer want to run your business, you can liquidate the business without having an insolvent company. Members’ voluntary liquidation, as in its title, is a voluntary process. However, if you have a board of directors, shareholders, or other important company members, they must vote to liquidate the company. A professional can advise you on the exact number of votes needed for members’ voluntary liquidation. Generally, 75 percent of the business’ members must vote to liquidate the company. If the vote passes, a liquidator will be appointed. The liquidator must be appointed and cannot just simply take control. The liquidator will settle the business’ legal disputes and debts with the company’s creditors, lenders, claimants, and shareholders. If there are leftover funds because the company is profitable and not insolvent, then they must be distributed properly. Typically, leftover funds are distributed to the business’s members, shareholders, and investors.
Creditors’ Voluntary Liquidation
Unlike members’ voluntary liquidation, creditors’ voluntary liquidation is when the company’s directors understand they cannot pay the business’ debts in time. If the company’s liabilities surpass the asset values, creditors’ will want to liquidate the company. The board of directors will need to cooperate with the liquidation process and like any liquidation process, ensure that the creditors’ best interests are a priority. Like members’ voluntary liquidation, creditors’ voluntary liquidation requires an appointed liquidator. The liquidator serves the same purpose and role. They will settle the company’s debts and legal disputes with the best interests of the company’s creditors and lenders in mind. Because the company cannot pay its debts, usually it does not have any leftover funds. If the company does, for any reason, have left over funds, those will be distributed properly to its business members, shareholders, and investors.