Given that around 80% of all companies fail within the first few years of operation, liquidation is a regular occurrence in the business world. A company’s existence is brought to an end during the liquidation procedure. The assets of the company are subsequently allocated to all eligible supplicants fairly and equitably.
Also available are the services of wholesale and retail liquidation companies that will purchase stuff that has been liquidated from others and then resale this merchandise to consumers as well as smaller businesses in quantity. Merchandise liquidators are a type of company that specialises in liquidating merchandise.
In this article, we will explore liquidation and how it might be beneficial to a firm.
Various Types of Liquidation
Liquidation is typically divided into two categories: liquidation and bankruptcy. When a company goes into creditors’ voluntary liquidation (CVL), it means that both the shareholders and the company’s directors have concluded that liquidation is the best course of action because the company is insolvent and lacks the assets necessary to pay off all affiliated creditors. As a result of its inability to pay its debts, the company decides to close its doors to pay off its creditors on a voluntary basis.
Some companies, however, are forced to liquidate because one or more of their creditors have brought the company to a higher court over non-payment of debt obligations, in which case the company is obliged to liquidate. The corporation will be forced to liquidate if the creditors succeed in their lawsuit before the high court so that its assets can be liquidated to pay off the debts. A form of liquidation known as “compulsory liquidation” is used to describe this type of situation.
Is Liquidating a Good idea?
By liquidating a firm’s assets, the business no longer needs to be concerned about legal issues, as they will be suspended due to the liquidation process. Following the company’s liquidation, any remaining debts are written off, and leases may be terminated due to the liquidation.
Furthermore, the company’s employees can be paid by receiving redundancy compensation, allowing them to leave with a sense of satisfaction after everything is done. It can also save a company from going through lengthy and onerous legal processes, and liquidation is really a pretty inexpensive process in most cases.
Corporations that liquidate will also experience reduced pressure from creditors, as the vast majority, if not all, of them, will obtain at least some kind of payback after the sale of a company’s assets.
What Companies Should Consider Liquidation?
Organisations whose assets directly create money and those whose assets are the tools utilised to generate income should consider liquidating their assets. Even corporate entities that own assets that are utilised to produce money indirectly might benefit from product liquidations.
What Assets Can Be Used in Liquidations?
To pay off its creditors, an organisation can sell a variety of assets to raise the necessary funds. Among other things, a business can sell real estate, art and supplies, corporate vehicles and office furniture, and a wide variety of business equipment such as credit card machines and phones, computers and printers, fax machines and scanners, and cash registers.
Many liquidators would purchase such items in bulk and then resell them to customers searching for a good price or smaller businesses, such as startups, requiring a few extra supplies to get their business off the ground.
How to Liquidate Your Company’s Assets
The appointment of a liquidator is the first step for the liquidation of assets. In a compulsory liquidation proceeding, the court will issue the order for the liquidation. During a voluntary one, the company’s shareholders will vote on whether to proceed with the process.
However, the liquidator will collect the enterprise’s corporate assets, including uncalled capital (that is, the amounts owed on corporate shares), and then sell them so that the proceeds can be used to pay back the company’s creditors in the order of priority that they were owed the money.
Furthermore, if any money is left over after the assets have been sold, the liquidator will transfer the proceeds to the company’s shareholders in question. Following that, the company is formally or officially dissolved. After a liquidation, a corporation will no longer dispose of any of the assets it has acquired. Therefore, we recommend that you contact a professional goods liquidator to assist you in expediting the process and maximising your return on investment to the extent that this is possible.
What Are the Benefits of Liquidating a Business?
The process of liquidating an organisation will assist in getting rid of excess inventory. For example, a business specialising in distribution or retail will almost certainly have some excess inventory after the quarter.
The surplus inventory will not only take up valuable storage space that could be put to greater use, but it will also increase the company’s storage expenses. The corporation could opt to liquidate to get rid of surplus inventory and sell the undesired assets to pay off creditors while also saving money on storage costs as a result of doing so.
Minimise Debt Repayments
One of the most significant benefits of liquidation is that the majority of your debts will be forgiven or written off, but there are some exceptions to this. The costs of your corporation’s creditors’ meeting and the Statement of Affairs will still be your responsibility.
The sale of company assets will cover all further liquidation costs (including debt/outstanding creditor repayments) incurred as a result of the bankruptcy. In most cases, this makes liquidation a more cost-effective alternative.
When hiring liquidation services, they will be in charge of the administration of any redundancy or restructuring charges. They will be responsible for all employee layoffs and related payments, as well as for the cancellation of any leases or other long-term obligations they may have.
Unless you or your shareholders have provided personal guarantees or taken out director’s loans, you or your shareholders are not required to pay these debts.
Put a Stop to All Legal Action
By declaring bankruptcy, you are able to put an end to the possibility of legal action and redirect your efforts elsewhere. It is unlikely that your creditors will be able to bring legal action against you unless they can establish some form of personal culpability for the company’s debt.
Consequently, you can demonstrate that your company was forced to close due to dissatisfied creditors petitioning you through the courts, rather than that it was forced to close due to a voluntary decision.
Cancel Lease Arrangements with no Consequences
Not only will you be able to reduce the number of debt repayments your company has already made, but you will also be able to avoid making any additional payments in the future.
When a company undergoes liquidation, any lease or hire purchase arrangements will be cancelled, as is customary. This means that you are no longer responsible for any additional payments that may have been a part of your original agreement.
You may be able to recover any outstanding amounts owed to leasing company creditors from your designated insolvency partners if you have any outstanding leasing company debts.
What About Employees During a Liquidation?
All employment agreements with a firm that is going out of business may be terminated if the company goes out of business. If the firm has employees at the time of its liquidation, the liquidators would normally pay a visit to the business and advise the employees of the company’s inability to continue operating. Employees who have unpaid entitlements will be advised in writing of the liquidation, which is typically delivered to the employee’s last known email or postal address if one exists.
The company in liquidation will re-employ the employees who are required for the period of time they are required, which could be anywhere from a few days to several months if the liquidators continue to trade the business or require the expertise of certain employees after the company’s liquidation has been completed.
Employees who continue to work for the firm after it has been liquidated are compensated as a result of the company’s trading on expenditures account. If the liquidators are successful in selling the company’s business, the purchaser may be able to provide new employment opportunities to at least some of the company’s employees.
Priority is given to the payment of employees’ preferential claims after the cost of the company’s liquidation, which includes any trading on costs, the cost of realising the company’s assets, the costs of the liquidator’s fees and expenses, as well as the costs of the petitioning creditors, especially if the company was put into liquidation by the High Court.
Suppose funds are available to pay any of the preferential employee claims. In that case, they are likely to come from the sale of the business and assets of the company, as well as the collection of any debts owed to the company, all of which can take time. If funds are available to pay these claims, partial payouts are not uncommon to occur when funds become available.