There are some scenarios in which your business venture, plans and ideas don’t necessarily result in success. However, how you end your business might just be one of the most important questions out there. You see, when it’s the solvency of the company that’s in question, the business needs to be liquidated. A liquidation in finance and economics is the process of bringing a business to an end and distributing all of its assets to various claimants. This usually happens when a business cannot pay its obligations in due time. Still, whether or not the liquidation is compulsory or voluntary might just make a world of a difference.
Agreement with shareholders
The first thing you need to understand is that, depending on the structure of your company, you can’t just liquidate your assets. You need the approval of, at least, 75 per cent of the shareholders. Keep in mind, nonetheless, that this could potentially become a major problem. Regardless of how desperate your situation is, not everyone on your staff will see things this way. Therefore, it’s your role as a director to persuade that this is the right way to go. Sometimes, saying that a compulsory liquidation is an inevitability if they refuse to go for a voluntary liquidation won’t be a strong enough argument. It is in this scenario that you need to apply all your persuasiveness and networking skills.
Give them some time
The next thing you need to keep in mind is the fact that you can’t just go ahead and liquidate your assets. You need to initiate the liquidation process and find the time to prepare for it. This means that you can do all that is in your power to reduce the scope of the losses of your creditors or try to capitalize on some potentially available assets, while you still can. On the other hand, if the liquidation is compulsory, you virtually won’t have a say in it. A compulsory liquidation can come at any time and once it starts, you completely lose control over the process.
The appointment of liquidator
A liquidator is a person in charge of liquidating the assets of the company in question and it is around this topic that so many different problems may arise. Provided that you’re embarking on a voluntary liquidation process, you get to appoint the liquidator. In a scenario where there’s a compulsory liquidation, it is usually the court that will appoint the liquidator. Needless to say, the prior scenarios are far more favourable for you. Due to the fact that liquidators are also in charge of investigating the conduct of the company’s directors, they’re less likely to find you guilty if you A) embark on a voluntary liquidation and B) start liquidation early.
Keeping good name
The next important thing that you need to understand is the fact that keeping a good name is definitely something that deserves a high position on your priority list. There’s a great deal of impact on the perception of the situation solely based on who pulled the plug. When going for voluntary liquidation, even though things are bad, you’re still the one making the call. Also, it adds to your credibility, seeing as how you will be seen as someone who isn’t afraid of making a tough call.
Putting creditors first
Another thing you need to take into consideration is the fact that if you seek a creditor’s voluntary liquidation you get more time in order to create a better return for your company’s creditors. In other words, the simplest way for you to do something for your creditors is to seek a creditor’s voluntary liquidation. When it comes to compulsory liquidation, this option doesn’t really exist.
One last thing worth taking into consideration is the fact that liquidation usually comes with its own set of fees. You see, fees for compulsory liquidation are generally higher. In other words, voluntary liquidation is just outright cheaper for you and, in this way, a far superior option. If you believe that time is money, the fact that voluntary liquidation tends to be substantially quicker process might end up making all the difference in the world.
In the end, it’s usually for the best that you avoid liquidation if by any means possible. The simplest way to do this is to pay off your debts, defend the petition at court, enter a company voluntary arrangement and choose a CVL before the hearing. If this is not possible and liquidation is an inevitability, it’s probably for the best that you do it on your own terms. In other words, voluntary liquidation is usually a much better choice. Keeping as much control as you can is sometimes all that you can do when going gets tough.