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Company liquidation; know the types of liquidation and its processes

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Are you running an insolvent company? You may be running at considerable risk. The truth is any unsecured creditor may compel you into compulsory liquidation filing a petition into the court. Company liquidation is a winding up process where the company will be ordered to liquidate assets appointing a liquidator, selected by the creditors or the court. On the other hand voluntary liquidation is safe as here the directors of the company enter voluntarily into liquidation. The aim remains the same which is to sell assets and repay creditors, voluntary or compulsorily. Voluntary liquidation simply hands directors a higher level of control.

Compulsory liquidation

A creditor should request or file a petition to the court asking the company for compulsory liquidation. This step is taken by lenders and financial institutions to recover funds, in case they feel they will not be repaid. This receives approval only if the court observes that the business is unable to repay regularly, or the creditor can illustrate inability to recover money. If the court is convinced it passes a rule to windup the business and appoints liquidators to initiate the process of selling, marketing and valuing the assets of the company.

The compulsory Company liquidation happens as a result of:

  • Total liabilities and debts exceed assets value
  • Taxes owed
  • Unable to repay debts on due
  • Company members number fall below the prescribed statutory minimum
  • Failed to re-register as a private or public company
  • Not commenced trading within the one year period of incorporation

 

The compulsory liquidation in process means, the selling of company’s assets starts and the company ceases.

Voluntary liquidation

The voluntary liquidation process is less stressful. This is because it is a well planned process where the directors of the company consult an insolvency practitioner. They assure the liquidation will offer the right outcome to the creditors of the company and then the company winds up.

If a company is in high debts the directors consider recovery procedures such as financing, administration or voluntary arrangements, giving time to accept that liquidation is a necessity. The aim is to postpone the process, but if it leads to increase the debts of the company, the director is liable. Of course, directors are not liable normally for limited company debts, but if there is a wrongful trading done by one of the directors, he has to pay a contribution towards the company assets. Voluntary company liquidation deals with appointing voluntarily insolvency experienced practitioners to proceed and take charge of the process so that the headaches and hassles of winding up are avoided.

A few advantages of voluntary liquidation are:

· Outstanding debts are written off

· Legal action comes to a halt, if any against the company

 

  • Staffs can claim redundancy pay. In case money comes from sale of assets, they can claim.
  • Lease terms and agreements on hire purchases get terminated from the company liquidation date. In case, there are any arrears owed, they may claim with other creditors.
  • Low costs are involved as even the professional fees are done from the company assets sale.
  • Court processes can be avoided.



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