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The Significance of Liquidation in Your Business

If you part of the business industry, there is no doubt that you have encountered the name Phillip Cochineas in one of your readings as being linked to the liquidation of his company and is now building it back. What is basically the whole deal with liquidation and its real meaning? If you say liquidation, you are referring to a legal process that some business establishments go through if they need to put an end to their business. 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. For the assets of the company, it will be the part of the creditor to do something about them after the company has declared that they will have their assets liquidated. In order for the creditors to receive money from these assets, they would rather have them sold to another company or person. Usually, the creditors will take charge in the assets that they can sell coming from the company. 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. Mostly, the preferred shareholders will gain more favor from the what is left from the proceeds of the assets and the next ones are then the common shareholders.

There are basically two major kinds of liquidation. The first one is what you call compulsory liquidation and the second one is what you call the voluntary liquidation. In compulsory liquidation, the court of the land is the one to make orders to the company to have their assets liquidated in order for them to pay off their debts to their creditors. Meanwhile, if you talk about voluntary liquidation, there is a filing of petition for liquidation in the court of law either done by the creditors, the contributors, or even the companies themselves. This is the most likely scenario if a company has debts that are prone to winding up the company or if the company cannot anymore pay off their existing debts. Most of the time, the decision to wind up and dissolve the company is all the doing of the shareholders of the company thus the need to have voluntary liquidation.

If a company has debts that they cannot pay, they are most likely caused by a change in the market or an increase in competition. It is then expected that liquidation of the company will most likely take place. If a company closes because of liquidation, whatever debts the company has will all be forgotten. This allows the directors of the company to look at other business chances just like what was done by Phillip Cochineas.

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