Liquidation is a legal process through which, a company or a business is brought to an end. When a business is liquated, its assets are sold off, and the proceeds are used to pay its creditors. It is also known as winding up or dissolution of business.

The businesses or companies that do not have enough resources to pay off their debts avails the facility of liquidation. All the assets of the company are taken over by its creditors; they use these assets to cover their advances to the company by selling them, and converting them into cash. Creditors are the first in line to be paid in the case of liquidation. After the creditors, the preferred shareholders fall in the priority list followed by the common shareholders.

Liquidation can be of two kinds; it can be either compulsory or voluntary. Compulsory liquidation occurs when the court orders a business to liquidate its assets and pay off its creditors. The company itself, the creditors, or the contributories can put a petition forward in court. Usually, the reasons behind this are that the company is unable to pay its debts, or it is equitable to wind up the company. The shareholders of the company, who decide to wind up the company, and dissolve it, support voluntary liquidation.

The following steps are followed during the process of liquidation. Initially, a detailed inventory of all the assets of the company is prepared, splitting it into different categories. After that, an auction takes place for this inventory in which the decision is given in the favour of the highest bidder. Non-liquid assets are difficult to dispose off as compared to the liquid assets. Take an example of plant and machinery, which depreciates over the time, and hence is sold at a much lower price than it was bought on. For disposing off the real estate, the services of a real estate agent are taken, or it can be disposed off through a foreclosure.

A person known as the insolvency practitioner performs the whole process of liquidation by dealing with the creditors and taking care of all the legal requirements of the process. Liquidations normally cost a lot, because they are not free. For example, approximately 7,000 pounds are to be paid to the insolvency practitioner alone for his services in winding up a small business entity.

There are some alternatives to liquidation, which should be considered before making this drastic choice. Sometimes, companies prefer to be simply struck off the Register, as this is a cheaper option. In this case, a request is made to the registrar to strike the name of the company off the register. The company can be added to the register again when it is in a good financial position. Phoenix is an option for businesses in the UK, which can allow them to have a fresh start. This process includes liquidating a company, and then resuming it under a different name. This allows the company to retain its customers, and suppliers.

Liquidation is a final step for any business, thus, it should be taken carefully. If you wish to continue your business in spite of your financial problems, it may be a better option to go for one of the alternatives mentioned above. However, if there is no other way to clear your debts, or you believe that the business is no longer viable, liquidation is the most suitable option.

Bobby Dazzler is a legal consultant. You can take his advice on company liquidation and protect yourself from your creditors. For more information visit his recommended website at http://www.beesley.co.uk.

Tags: administration order, company liquidation, creditors voluntary liquidation, finance