What Is Business Liquidation and its Importance?

When your business is not profitable anymore and you feel there is no way that insolvency can be prevented, you can liquidate the assets of the company and end it. This is called liquidation. However, before this process can be started, there are certain steps that need to be taken so that the directors of the company are protected.

Types of Liquidation

There are 2 types of liquidation. Compulsory – where the creditors get a winding up order and as a result the business is forced to be liquidated. The second type is Creditors Voluntary. In this kind, the liquidation is voluntary and this is also the easiest method to liquidate the company.

Creditors Liquidation Services Sydney

Before starting this voluntary liquidation, you need to approach a practitioner who will help you facilitate the process. The insolvency practitioner will have a meeting of the creditors and during which a liquidator will be appointed. Normally the creditors appoint someone as a liquidator who has been recommended by the directors. However, if the bank is a major creditor, they may choose to appoint one from their panel. The liquidator then sells the assets and uses the money to repay the creditors.

Creditor’s voluntary liquidation is expensive but this process is shorter and lesser of a stress than the compulsory one. However, you can also go through different routes before going in for liquidation. These routes are:

Alternative Routes to Liquidation

Pre-pack administration – where the assets are sold so that the funds are recuperated and used to pay the debts. The company during the entire process can still operate. This helps to preserve the integrity of the brand, retain contracts and employees.

Company Voluntary Arrangement is an arrangement that is proposed to the creditors. If this arrangement is accepted, the debt of the company is alleviated to some extent. The arrangement is such that monthly payments are spread out over a longer period.

Process when a compulsory Liquidation is Ordered

When the court orders the business to wind up, they appoint liquidators and a person who acts as an Official Receiver. The process of valuing of the assets then begins as also the marketing and selling of these assets. However, the creditors may decide that they want to nominate another person as the liquidator and they may have a supervisory liquidation committee appointed as well. In both these cases, the only option left to the owner of the business or the directors are to get guidance from Corporate Insolvency Balmain so that the potential negative outcomes can be mitigated as a result of this compulsory liquidation.

Liquidation of the company is never an option which is preferred by the owners or the creditors but this sometimes is a necessity owing to the way the business is performing.

Thomas has 20 years’ experience as an insolvency and company turn-around specialist with Ernst & Young. We can do bankruptcies and company closures.