DCL Advisory

What Is Business Liquidation And It's Importance?

Press Release   •   Jan 10, 2017 17:46 AEDT

Business LiquidationWhile it should stay the last option, it is always wise to know about liquidations. It also helps to set up your company, telling you all that you need if you ever run into a similar situation.

A business beyond redemption or revival asks for extreme measures to be taken. This is when most opt for insolvency. But it can be prevented. For liquidation is not a preferred way of owners or the creditors; it’s only out of extreme necessities the step is taken. Selling the business’ assets for money is the easiest way to end it. But, before you get started on the process, you must ensure certain conditions prevail. This is to save the company’s directors from getting into the wrong sides of the law.

From legal viewpoints, fraudulent activities make a company go under liquidation. An example would be exploiting minority shareholders.

High levels of competition in the market cause companies to shut down. So do frequent changes in the government policies.

Liquidation: The Types

Compulsory liquidation:

Business assets and properties sold off to pay the creditors back by the Court after issuing orders for the business to close. Then the liquidators or a supervisory liquidation committee – selected either by the Court or by creditors - and the Official Receiver – also selected by the Court – take up the matter. Valuing, marketing and selling of these assets begin. There are potential negative outcomes that need to be mitigated during compulsory Liquidation Services, so it’s essential to select properly who will be in charge.

Creditors’ Voluntary Liquidation Services:

The liquidation is voluntary i.e. it occurs under no pressure. It’s also the easiest method. Approach a practitioner to know more and if the person is experienced and reliable, he’ll further help you ease up the process. The insolvency practitioner will round-up the creditors through a meeting and they will finally appoint the liquidator, recommended by the director(s). If the major creditor happens to be some bank, you may have to choose a liquidator from the bank’s panel. The selling of assets and using the money for paying back the creditors is solely the liquidator’s job and even the bank has no rights to wrongfully manipulate a liquidator’s job. It’s an expensive process, though; but it’s, shorter and less of stress.

Why liquidation is important?

Liquidation is important if a business fails due to anything from a lack of visionary management to increasing debts; from almost-zero revenue inflow to rising costs of unnecessary assets. Absence of profit planning and control on the continuity of losses for extended periods also call for liquidation. These can be avoided if the rules are known beforehand. You’ll invest as much as possible into items that can fetch you the cost lest you ever run into it.

Thomas Dawson Registered Liquidator Thomas has 20 years’ experience as an insolvency and company turn-around specialist with Ernst & Young. We can do bankruptcies and company closures.