What Happens During the Liquidation Process?

Generally, all activities that occur during the liquidation process lead to the dissolution of the company. This can largely involve selling the company properties, paying off debts, and clearing up all legal troubles if there are any. Companies follow a step-by-step procedure to be liquidated. During the whole process, all business transactions should cease, except for those that are necessary to accomplish the liquidation.

A liquidation can generally be categorized into two types. A voluntary liquidation occurs when there is a consensus among all partners or shareholders to dissolve the company. A compulsory liquidation, on the other hand, is one that is required either of the court or of a creditor. In either types, liquidation means selling off all the company assets to gain enough finances to pay off debts. This does not mean, though, that all company liquidations are caused by bankruptcy.

After determining the need for dissolution, the appointment of an official liquidator is carried out. The liquidator monitors and investigates the whole liquidation process, which can involve collection of company assets and distribution of these assets to creditors. He is also tasked to inform relevant authorities of any misconduct uncovered during the investigation. All power and authority of company executives will be removed and transferred to the liquidator after the appointment.

After the loans are paid off, employees can have a claim on their wages. Sometimes, an additional amount is distributed to compensate for any damages caused by the liquidation process. If there is an excess of funds after company assets are claimed, the liquidator can distribute the amount among the company partners.

The next step is to send out reports to all involved parties, whether to the creditors or to the court. The report will state the final financial status of the company after finishing the liquidation process. After all the notifications, the company can be officially dissolved. A liquidation process can last indefinitely for as long as it needs to be accomplished. Of course, it is more practical to carry out the process as soon as possible.

It is commonly considered that the liquidation process signals the end of the company, but for some people, liquidation only begins another business venture. After liquidation, a company can choose to gather the same partners and form a new company bearing another name, but still offer the same type of products and services. The company can also cater to the same clientele and collaborate with the same manufacturers. A company that does this is called a phoenix company, as it seems to be “reborn” after being dissolved.