If a company is not performing well, the board of directors decide to call an extraordinary meeting of the shareholders, in which it is decided by the consent of the shareholders whether the company should liquidate or not.
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.
In the shareholders extraordinary meeting, it is decided by sheer voting whether the company should declare bankruptcy or not. In case, it does, the company informs the creditors, and they are paid off by selling the assets of the company.
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 assets that are sold are the property of the company, and are not bound under hire purchase, or owned by any third party. If there is any equipment that is partially owned by the company, the liquidator cannot sell it. The liquidator works out an agreement with the other owner regarding its return or sale. The liquidator has to maintain a meticulous record of all transactions that are conducted on the behalf of the company. Once all the assets have been disposed, the company is wound up, and declared to be out of business.
In some cases, the assets can be sold to the former stakeholders of the company, this is called phoenix. This should be clear, and the buying party to avoid legal charges against themselves must fulfill certain legal requirements. In case of phoenix, the records of the board of directors, and the shareholders, who are buying the assets, must be inspected, as they might be gaining some edge, by voluntary solvency of the company.
If liquidation can be avoided, and still the directors choose it, it ruins the reputation of directors, and the money of the shareholders and the creditors. Thus, it is not a good choice for any of the stakeholders. The value of the firm when it is an ongoing concern is more than the value of the assets when it wound up due to the goodwill of the company. The asset does not remain an asset; rather it becomes a junk.
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. - 29970
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.
In the shareholders extraordinary meeting, it is decided by sheer voting whether the company should declare bankruptcy or not. In case, it does, the company informs the creditors, and they are paid off by selling the assets of the company.
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 assets that are sold are the property of the company, and are not bound under hire purchase, or owned by any third party. If there is any equipment that is partially owned by the company, the liquidator cannot sell it. The liquidator works out an agreement with the other owner regarding its return or sale. The liquidator has to maintain a meticulous record of all transactions that are conducted on the behalf of the company. Once all the assets have been disposed, the company is wound up, and declared to be out of business.
In some cases, the assets can be sold to the former stakeholders of the company, this is called phoenix. This should be clear, and the buying party to avoid legal charges against themselves must fulfill certain legal requirements. In case of phoenix, the records of the board of directors, and the shareholders, who are buying the assets, must be inspected, as they might be gaining some edge, by voluntary solvency of the company.
If liquidation can be avoided, and still the directors choose it, it ruins the reputation of directors, and the money of the shareholders and the creditors. Thus, it is not a good choice for any of the stakeholders. The value of the firm when it is an ongoing concern is more than the value of the assets when it wound up due to the goodwill of the company. The asset does not remain an asset; rather it becomes a junk.
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. - 29970
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 http://www.beesley.co.uk.
