Liquidating Your Business

So just what is the liquidation option? It is the direct conversion of assets to cash by selling them
to a user/consumer. There are generally three categories of business that will liquidate assets:

* Businesses with assets used indirectly in the production of income -- This generally includes
the furniture, fixtures and equipment (FFE) of a service business, such as insurance agencies,
attorney's offices, etc. The liquidation value is extremely limited and can usually only be sold to
used office equipment dealers, although an auction is sometimes viable.
* Businesses with assets used as tools in the direct production of income -- This would include
restaurants, manufacturing and construction companies. These assets can be sold to similar
types of businesses, sold or consigned to used equipment dealers, or liquidated with the
assistance of an industry-specific auction house.
* Businesses whose assets directly produce income -- These are retail storefront businesses
and, for our discussion, are independently owned and operated. Independent stores, apparel and
shoe stores, sporting goods stores and furniture stores are in this category. (Public companies
and multi-unit operations, like major chains such as Target, Staples or Home Depot, also fall into
this category, but amazingly enough these companies often wait to liquidate until they are
bankrupt! By liquidating their "losers" and focusing on their "winners," both large and small chains
could avoid insolvency, but they usually wait until it is too late.)
insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a
business, insolvency refers to the inability of a company to pay off its debts.

What Does Liquidator Mean?

In the most general sense, a person or entity that liquidates something. More specifically, a
liquidator refers to an officer that is specially appointed to wind up the affairs of a company. The
liquidator is legally empowered to act on behalf of the company in various capacities.

What Does Liquid Asset Mean?

An asset that can be converted into cash quickly and with minimal impact to the price received.
Liquid assets are generally regarded in the same light as cash because their prices are relatively
stable when they are sold on the open market.
What is Voluntary Liquidation?
There are a couple of reasons why a company may undergo a voluntary liquidation. In the case of
small businesses, the death of the founder and owner may result in any shareholders choosing to
not continue operations. In this scenario, liquidations of all major assets will commence. Once all
assets are converted to cash flow and all outstanding debts are settled, the shareholders will
divide the remaining assets and the company will be considered closed.

Another example of voluntary liquidation is actually a means of helping the company to continue.
Corporations that are encountering a period of loss may choose to liquidate subsidiary companies
as a means of settling outstanding debts of the parent company. Of course, all indebtedness
connected with the subsidiary will also be settled, and any remaining cash used to cover the
obligations of the parent. This can sometimes be sufficient to allow the corporation to continue
operations and hopefully begin to turn a profit at a later date.

Voluntary Liquidation
Voluntary Liquidation is the process by which the directors of a company, with the assistance of a
licensed insolvency practitioner, put the company into liquidation. This is to be contrasted with a
Compulsory Liquidation, which is a method by which a creditor issues a petition through the Court
to have the company wound up.
In a Voluntary liquidation, if the company ultimately has sufficient assets to be able to pay all of its
creditors in full (together with all costs) it will be a solvent liquidation, or Members Voluntary
Liquidation. If however the company has insufficient assets to pay all of its creditors in full it will
be an insolvent liquidation, or Creditors Voluntary Liquidation. This Creditors Voluntary
Liquidation is the most common form of Voluntary Liquidation.

In order to put a company into Creditors Voluntary Liquidation a meeting of the company’s
directors is held to instruct a licensed insolvency practitioner to assist them to convene meetings
of the company’s members (shareholders) and creditors.

The members meeting is held first and it is at this meeting that the resolutions putting the
company into Creditors Voluntary Liquidation and appointing a licensed insolvency practitioner as
Liquidator, are passed. Immediately after that meeting the meeting of the company’s creditors is
held. This gives creditors the opportunity to question the directors as to the reasons for the failure
of the company and to put forward any alternate Liquidator.

Once appointed the Liquidator takes control of the company and its asset
compulsory liquidation
The third type of voluntary liquidation is, as earlier mentioned, compulsory liquidation.
Compulsory liquidation is when a winding up petition has been issued and the court has found in
favour of the debtors, this is probably the less likely occurrences as business prefer to be paid in
full rather then shut a company down in order to recover less than it wants to due to the business
simply not having the money to pay
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Compulsory liquidation occurs when the company cannot actually pay off the money owed to its
debtors. A compulsory liquidation can be started by either the company itself; a creditor or several
higher up governmental bodies. If there are several directors within a company, then they all have
to present a winding up petition together if they want one, to prevent one person being able to
suddenly take the business from everyone else. A compulsory liquidation is a court order which
will then be issued off the back of this and mean the company has to cease business and
liquidate.

The court can appoint a person to liquidate the assets, or else a meeting of creditors can appoint
someone to do this job. They will basically oversee the selling and auctioning off of everything the
business owns, and make sure the money goes to the correct people.

It can take a lengthy amount of time in order to liquidate a business, but professionals can be
hired in order to help. The first lot of money made will cover the liquidation costs, and then from
there on the debts will be paid off as fully as possible and a plan devised to make sure this is
fairly done.

At the end, the creditors will again call a meeting in order to declare the business officially
liquidated. Any profit which may be made, which is unlikely, often ends up going into the state. To
finish the whole process, the registrar or court will be sent the full documentation, and the
business is no more.

There are many reasons why a court may issue a winding up petition on a business, but the most
common is that the company cannot afford to pay off its debts.

Important aspects of the liquidation process

May 25, 2010 – 2:12 pm

Liquidation is the only viable option left when you cannot continue to run your business. It is
however advisable that you become acquainted with the liquidation process to avoid any
problems when your business is winding up. The following are some of the important factors that
constitute an important part of the liquidation procedure.

Review the assets

You should maintain separate accounts if you are handling the business on the basis of a joint
partnership. After dissolving you will need to submit a separate statement of affairs to the court.
Remember that you cannot dispose any of the liquid assets during the liquidation process.
Moreover, you also cannot sell the assets cheaply to any relatives or friends. You should then
prepare a detailed list of the assets within the office. Ask the liquidator to review the assets and
determine the value of the same.

Pay the creditors

This is an important factor to consider while dissolving your company. Any sort of pending debts
should be paid off as soon as possible. However, pending debts can be paid off only after
dissolving the company and selling the assets.

Employees

It is important to remember your employees during the liquidation process. There is a possibility
that you may owe money to these employees. For instance, you might owe wages or salaries.
Employees are also entitled to compensation during the liquidation process. Seek the help of a
legal counselor regarding this process.

Consider the above mentioned factors and dissolve your business amicably without any
problems.