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Everything You Need to Know About Liquidation

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. Now, why do you always hear liquidation and what does it mean? As any business entity or company comes to an end, it is crucial for it to have to go through the legal process called liquidation. During this process, the assets of the company will be sold off to interested buyers and then the resulting proceeds will serve as payment for the creditors. This is why some people refer to liquidation as winding up or having their business undergo dissolution.

Usually, liquidation is thought of as the choice that business owners make when they can no longer pay for their accumulating debts. It will then be the creditor who will be given some power what they want to do with all assets of the company. In order for the creditors to receive money from these assets, they would rather have them sold to another company or person. 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.

When it comes to liquidation, there are basically two major kinds of them. The first one is what you call compulsory liquidation and the second one is what you call the 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. On the other hand, in voluntary liquidation, the company, the contributors, or the creditors will be the ones to file a petition in the court of law for liquidation. 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.

If a company has debts that they cannot pay, they are most likely caused by a change in the market or an increase in competition. Company liquidation is thus bound to ensue. All of the outstanding debts of the company will be forgotten when it closes via liquidation. This then gives the directors another direction for their company just like what Phillip Cochineas did.

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