A lot of news regarding liquidation might have come across you as you carry out your daily business struggles such as that handled by Phillip Cochineas. Now, why do you always hear liquidation and what does it mean? When a business is ending, it must go through the legal process of liquidation as it comes to an end. During this process, the assets of the company will be sold off to interested buyers and then the resulting proceeds will serve as payment for the creditors. Other names for the process of liquidation include business dissolution as well as winding up.
Oftentimes, the process of liquidation is well known to some people as a bold choice that some business establishments make when they come to the point in their business that they can no longer keep up with their debts. Liquidation is thus done so that the control of the assets of the company will go to the creditor. All these assets will then be sold by the creditor to interested buyers so that they can make as much money out of them. Creditors are the first ones in line who will get the profit of the assets that are sold by the business. If the creditors will have left something, the next in line who gets it will be the shareholders of the company. And then, even among shareholders, the ones that get more say about the remaining profit of the assets will be the preferred shareholders with only the common shareholders being next in line.
If you talk about liquidation, it can go in two directions. The first kind of liquidation is what you call compulsory and the second kind of liquidation is what you call voluntary. You call it compulsory liquidation when it is the court that will decide that a company must liquidate its assets and pay their creditors. It is very much different with voluntary liquidation as there is still a need to file a petition for liquidation to the court of law as done by either the contributor, the company itself, or the creditor. This usually takes place among companies that can no longer afford paying for their debts or have debts that will just end up winding the company up. Typically, shareholders of the business entity get to have a say in voluntary liquidation for the company to be dissolved.
Not being able to keep up with the competition and the recent changes in the market are the two common reasons why companies can no longer pay their debts. It is then expected that liquidation of the company will most likely take place. All of the outstanding debts of the company will be forgotten when it closes via liquidation. Like what Phillip Cochineas did, the directors of the company will be given better chances to be led to a better and brighter direction.