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3 Lessons Learned: Options

Everything You Need to Know About Liquidation

You might have heard on the business news how Phillip Cochineas has helped built back their company after facing serious liquidation issues. Now, why do you always hear liquidation and what does it mean? When a business is ending, it must go through the legal process of liquidation as it comes to an end. During this process, the assets of the company will be sold off to interested buyers and then the resulting proceeds will serve as payment for the creditors. The process of liquidation is also referred as business dissolution or winding up.

Oftentimes, the process of liquidation is well known to some people as a bold choice that some business establishments make when they come to the point in their business that they can no longer keep up with their debts. Liquidation is thus done so that the control of the assets of the company will go to the creditor. What most creditors do is they sell them off so that they can make as much money from them as they can. Creditors are the first ones in line who will get the profit of the assets that are sold by the business. It will be the shareholders of the company next who will be getting the remaining proceeds from the assets sold and left off by the creditors. Usually, the preferred shareholders get to have a say on what is left over the common shareholders.

If you talk about liquidation, it can go in two directions. The two major types are called compulsory liquidation as well as voluntary liquidation. You call it compulsory liquidation when it is the court that will decide that a company must liquidate its assets and pay their creditors. It is very much different with voluntary liquidation as there is still a need to file a petition for liquidation to the court of law as done by either the contributor, the company itself, or the creditor. This usually takes place among companies that can no longer afford paying for their debts or have debts that will just end up winding the company up. Typically, shareholders of the business entity get to have a say in voluntary liquidation for the company to be dissolved.

Not being able to keep up with the competition and the recent changes in the market are the two common reasons why companies can no longer pay their debts. These are just some of the reasons for wanting to liquidate one’s company. All of the outstanding debts of the company will be forgotten when it closes via liquidation. This then gives the directors another direction for their company just like what Phillip Cochineas did.

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