What Happens With The Voluntary Liquidation Of Creditors?

Article Written By: Bobby Dazzler

The board of directors of a company have the authority to declare that the company is not performing well, and should be shut down, for that matter, a major shareholders meeting is called on.

The first is the cash flow; that is, the cash going out of the company is exceeding its income. The second is that the balance sheet shows that the liabilities of a company exceed its assets, and the third is that creditors move to the court to declare a company insolvent.

During the extraordinary meeting of the shareholders, some rational options are explored, and the final decision is taken by voting of shareholders. If a company decides to liquidate, a liquidator is appointed by the company to foresee the transparent and clear liquidation of the assets. The company appoints the liquidator, but the creditors must be taken in confidence, or they can ask for another liquidator.

A liquidator is appointed by the company, which might be accepted or changed by the creditors, whose responsibility is to see to the affairs of winding up of the company. The assets of the company are sold through an auction, or by advertising in the media, and the liquidator pays off the creditors as a priority, which has been agreed upon by the creditors, and the liquidator.

The asset, which is to be sold must not be hired by the company, in process of being bought, or by anyway owned the third party ownership is involved, for instance leased assets. Liquidator can sell or return the third party owned asset by taking the considerations of the third party. The liquidator must maintain a transparent and clean record of all the sold assets.

In certain cases, the liquidator is asked to sell the assets to former directors or shareholders. This process is called a phoenix. In this process, there are certain rules that need to be followed; otherwise, the directors, or shareholders who purchase the assets can be charged with illegal trading. The conduct of the directors of the company is also investigated to ensure that voluntary liquidation of the creditors was the only viable option for the company.

Liquidation of a company must be avoided at any cost, as it ruins the reputation of board directors, the shareholders confidence is shaken by the loss of money, and the creditors never get as much as they owned. The asset value of the company being wound up is less than the asset value of an ongoing concern having same figures on the balance sheet, as the assets of a solvent company are no longer assets; rather they are sold at junk price.

Liquidation of a company should be the last option for any company, thus must be avoided by the board of directors, and management by looking out for new investors to pour in money in the operations and bargain of the company a longer time to pay off the debt to the creditors.

About the Author

Bobby Dazzler is a financial consultant. You can take his advice on creditors voluntary liquidation and complete information on legal steps for liquidation of a company at his recommended website at www.beesley.co.uk.

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