Plain Facts on the Liquidation Process

By James Keenen

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One of the ways that a business can use to avoid bankruptcy is to go through liquidation and sell off company assets to pay off their creditors. It is becoming more and more common now, due to the declining U.S. Economy and the changing of bankruptcy laws. When a company goes through liquidation, it does not mean that it is out of business for good but for the time that its assets are being liquidated, it will have to temporarily stop doing business.

There are three different types of liquidation procedures that are used and the first one is called “members voluntary liquidation." With this liquidation process, all of the shareholders or partners unanimously agree on the liquidation and the value of the assets to be sold off exceeds the amount of debt that is owed. The second common liquidation procedure is referred to as “creditors voluntary liquidation" and it also is agreed upon by the partners or shareholders.

The difference between members voluntary and creditors voluntary liquidation is that with creditors voluntary, the amount of debt that is owed exceeds the total value of the companies assets that are to be sold off. The third type of liquidation process is called “compulsory liquidation" and it is ordered by a court. The first thing that takes place when the liquidation process begins is that the controls of the company are handed over to a receiver, who will over see the actual liquidation process.

All business transactions are halted and all parties are notified, including debt holders and company shareholders and partners. Then the process begins to inventory and sell off company assets,k so as much of the companies debt can be paid off as is possible. The reasons that a company can end up in liquidation are many but they are all done one of the three listed ways. Many companies emerge from the liquidation process to move ahead and prosper and are able to make a new start without being burdened by its debts.

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