Company Liquidations- The Different Types

What is company liquidation? If you’re looking for a simple definition, it is the process whereby a company undergoes dissolution. The business assets are sold off and the monies gained paid the creditors. More often than not, if a business is not making a loss, it will not go through this process, but in some [instances|cases}, even solvent ones have to take this route. Let us look further into this [issue|topic} to learn more.

There are two primary types of company liquidations. The first is called voluntary company liquidation where the dissolution decision is passed by the directors or shareholders. If the members of the board choose to take this route, they need to get most of the votes in order to proceed. Ideally, if the shareholders want to liquidate the company, they have to get the most votes prior to being able to proceed. The second type is known as compulsory liquidation. This one is initiated by the creditors and happens when a court order is issued to sell the business assets.

Voluntary Liquidation

It is important to note that this form of liquidation can either be MVL or CVL if the company is insolvent. MVL or Members Voluntary Liquidation is done so that the dissolution of the business takes place in an orderly manner. In other words, it can be initiated if the shareholders feel that the board of directors are taking actions that are against their best interests. Voluntary liquidation, however, is the best solution when it comes to dissolving a company as the court is not involved, unlike compulsory liquidations. When the assets are sold, the creditors are more often than not paid off in full.

Compulsory Liquidation

In this type, the process is initiated by creditors. The main reason is when the business fails to pay off their debts. At this point, the creditors get a court order to have the company dissolved. The legal costs are covered by the creditors, but once liquidation is complete, they are the first to get paid, and so, it is usually worth the cost.

Here, creditors that want liquidation of a certain company go to court in order to get the business assets sold. This usually occurs when they feel that the directors aren’t cooperative in regards to paying debts. In most cases, however, companies do not liquidate as the directors pay off the debts in fear of losing the company.

Provisional Liquidation

This is another form of liquidation whose aim is to preserve company assets that may be at risk. In such a case, a liquidator is appointed to protect the financial status of the business. The petition of liquidation is ideally taken into consideration by a court of law.

How long do Company Liquidations Take?

If shareholders agree to short notice, then company liquidation can occur within 7 days. However, it does not stop there as the liquidators have to do conduct investigations, sell the assets and file the necessary paperwork. This can take anywhere between one and 2 years.

For compulsory liquidation, the court requires the process to be done within [3|three} months, but this is usually just a threat. As with voluntary liquidation, it can take up to 2 years to completely liquidate a company.

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