Liquidation is term that is used to describe a process that is used to raise capital by means of selling off a companies assets. These assets can be tangible properties such as tools and equipment or can even be less tangible properties such as patents or any other paper assets.
When a company is going through liquidation it does not necessarily mean that they are going out of business. A company can go through liquidation to pay off creditors so they can chart a new course or strategy which is many times the case. The truth of the matter however; is that the majority of liquidation cases involve a company that is in fiancial trouble.
There are three types of liquidation processes that are employed when a company is insolvent and they are “members Voluntary”, “creditors voluntary” and compulsory liquidation. With members vouluntary, the company partners or shareholders have agreed to the liquidation process and the value of the assets that the company has exceeds the amount of the money that is owed to its creditors.
With creditors voluntary liquidation, the partners or shareholders have all agreed to liquidate but the value of the companies assets is less than the amount of the money that is owed to its creditors. With compulsory liquidation, a court has ordered the company to liquidate its assets to pay off its creditors. After it has been decided to liquidate a companies assets, the first thing that is done is all business transactions are halted.
Then the controls of the company are handed over to a receiver, or group of receivers whose job it is to notify all share holders and creditors that the company is going through liquidation. Then the receivers begin the process of taking inventory of the companies assets and deciding how to convert them to liquid capital.
