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Important Liquidation Facts and Tips

If you part of the business industry, there is no doubt that you have encountered the name Phillip Cochineas in one of your readings as being linked to the liquidation of his company and is now building it back. So, what is liquidation all about? If you say liquidation, you are referring to a legal process that some business establishments go through if they need to put an end to their business. Since most businesses liquidated have to deal with creditors, the assets that they have left off will be sold to another company or person and whatever proceeds are made out of it will be given straight to the creditors as payment. This is why some people refer to liquidation as winding up or having their business undergo dissolution.

Most of the time, what people understand about the process of liquidation is that this is the option that some companies go to if they need to pay their debts. It will then be the creditor who will be given some power what they want to do with all assets of the company. All these assets will then be sold by the creditor to interested buyers so that they can make as much money out of them. The first in line to get the proceeds of the assets sold off by the company are typically the creditors. It will be the shareholders of the company next who will be getting the remaining proceeds from the assets sold and left off by the creditors. 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 two major types are called compulsory liquidation as well as voluntary liquidation. 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.

A lot of companies come to the point of not being able to pay off their debts when they have more competition or when there is a significant change in the market that they can no longer deal with. It is then expected that liquidation of the company will most likely take place. If a company closes because of liquidation, whatever debts the company has will all be forgotten. This allows the directors of the company to look at other business chances just like what was done by Phillip Cochineas.