essay on liquidation of a company

Thank you for signing up!

Understanding the Liquidation of a Company: Process and Implications

What is liquidation, forms of liquidation, the liquidation process, types of liquidation, the importance of asset sales in the liquidation process, benefits of liquidation.

Liquidation is a complex process that marks the end of a company's legal existence. It occurs when a company is unable to repay its debts and its assets are sold off to satisfy creditors and other claimants. The liquidation process aims to wind up the company's operations and distribute its remaining assets fairly among its stakeholders. In this article, we will delve into the definition, process, and benefits of liquidation, shedding light on its different forms and the steps involved.

Liquidation is the process by which a company is declared bankrupt and its assets are auctioned off to repay its creditors and satisfy other claims. This process applies to both small businesses and large publicly traded companies. Liquidation can be initiated when a company fails to meet its financial obligations, such as repaying loans, and is deemed unable to generate profits.

There are three main forms of liquidation: compulsory liquidation, members' voluntary liquidation, and creditors' voluntary liquidation.

Compulsory Liquidation

Compulsory liquidation occurs when creditors or lenders seek to liquidate a company that has failed to pay its debts within a specified timeframe. In this case, the company is forced to sell its assets to repay its creditors. Compulsory liquidation is usually the result of insolvency, where a company is unable to meet its financial obligations.

Members' Voluntary Liquidation

Members' voluntary liquidation is a voluntary process initiated by a solvent company whose owners or members decide to wind up the business. To proceed with members' voluntary liquidation, 75% of the company's members must vote in favor of the process. The appointed liquidator will then settle the company's debts and distribute any remaining funds to the shareholders.

Creditors' Voluntary Liquidation

Creditors' voluntary liquidation is initiated by a company's directors when they realize that the company cannot meet its financial obligations or its liabilities exceed its assets value. The directors appoint a liquidator to handle the company's legal and financial matters, and they actively participate in the liquidation process to repay the company's debts.

The liquidation process begins when certain conditions are met and approved by the Adjudicating Authority. Once the liquidation order is sanctioned, a resolution professional is appointed as the liquidator to oversee the process. The liquidation process can be summarized in the following steps:

Step 1: Appointment of Liquidator

The resolution professional, who is already involved in the resolution process, acts as the liquidator until a specific order is issued. The liquidator assumes the powers previously held by the board, directors, creditors, and corporate debtors. All creditors provide assistance and cooperation to the liquidator in managing the company's affairs.

Step 2: Public Announcement and Claims Submission

After the liquidation order is issued, a public notice is published within five days, inviting creditors and claimants to submit their claims. The liquidator collects and verifies these claims within 30 days from the commencement of the liquidation process. Additionally, registered valuers are appointed to assess the value of the company's assets.

Step 3: Verification and Approval of Claims

The liquidator verifies the submitted claims within 30 days from the beginning of the liquidation process and may request supporting documents from creditors and debtors. Once the claims are confirmed, the liquidator approves or rejects them, either in full or in part. The liquidator acknowledges receipt of claims within seven days and any disputes can be appealed within 14 days.

Step 4: Preparation of Reports and Asset Memorandum

The liquidator prepares various reports throughout the liquidation process. These include the Preliminary Report, Annual Report, Minimum Consultation Minutes, and Final Report. An asset memorandum is also prepared, containing the valuation of the company's assets based on the valuation and sales reports. These reports are submitted to the relevant authorities.

Step 5: Liquidation of Assets and Debt Repayment

The liquidator begins selling off the company's assets, excluding cash and bank balances, based on priorities and the necessity of repayment. Secured creditors are given priority, followed by preferential creditors, which include government taxes and employee salaries. Debenture-holders and unsecured creditors are paid next, and any remaining funds are distributed among the shareholders.

Step 6: Surplus or Deficit

After all payments to creditors have been made, the liquidator determines if there is a surplus or deficit. If there is a surplus, the funds are distributed among the shareholders. However, if there is a deficit, shareholders may be required to contribute the unpaid portion of their share capital.

Liquidation processes can be categorized into three types:

Voluntary Liquidation

Voluntary liquidation is initiated by the company's owners or members and is not forced by insolvency. This type of liquidation occurs when the company is solvent and capable of paying its creditors.

Creditors' voluntary liquidation occurs when the directors or shareholders of a company anticipate defaulting on creditor payments. This process does not involve court intervention.

Compulsory liquidation is a court-ordered process where a company is declared unable to repay its liabilities and is forced to cease its operations.

Liquidation offers several benefits, including:

Closure of a Non-profitable Company

Liquidation provides a way to close down a company that is no longer profitable. It allows the company's stakeholders to exit the business and pursue other opportunities.

Fair Distribution of Assets

Liquidation ensures the fair distribution of a company's assets among its creditors and stakeholders. The liquidation process follows a pre-established order of payment, ensuring that all parties receive their due share.

Relief for Creditors

Liquidation provides relief for creditors by allowing them to recover some or all of their outstanding debts. Creditors' claims are prioritized, and the liquidation process ensures that they are paid before other stakeholders.

Fresh Start for Stakeholders

Liquidation allows stakeholders to move on from a failed business and start anew. It offers an opportunity to learn from past mistakes and pursue more successful ventures in the future.

In conclusion, the liquidation process marks the end of a company's legal existence when it is unable to meet its financial obligations. The process involves appointing a liquidator, verifying and approving claims, selling off assets, repaying debts, and distributing remaining funds among stakeholders. Liquidation can be voluntary or compulsory, depending on the circumstances. Despite its challenges, liquidation offers benefits such as closure for non-profitable companies, fair distribution of assets, relief for creditors, and a fresh start for stakeholders.

• Capital Gains Tax

Recent Blog

Simplified overview of section 194jb of the income tax act, section 10 of the income tax act: exemptions, allowances, and how to claim them, simplified overview of section 115a of the income tax act.

History of Income Tax in India

Partner Remuneration and Its Taxation in India

Frequently asked questions, what happens to the employees and shareholders of a liquidated company.

Liquidation occurs when a company stops operating and closes down. Its assets are sold to pay off debts, and any remaining money is distributed to creditors and shareholders. This can happen voluntarily or be ordered by a court in cases of financial trouble.

For employees, this means potential job loss and unpaid wages. They may need to file claims to recover what they're owed. Laws in the company's country of registration determine the priority of employee payments compared to other creditors.

Shareholders face losing their investment, dividends, and voting rights. They may also have to pay taxes on any gains or losses from the liquidation. Shareholders are typically the last to receive any money after all debts are settled. The type of shares they hold affects their claims and payouts in the liquidation process.

Why Might an Individual Liquidate Assets?

People may liquidate their assets for various reasons:

• Financial Struggles: If facing issues like debts, job loss, or unexpected bills.
• Large Expenses: To fund significant purchases like a home or business venture.
• Divorce Settlement: In cases where assets need to be divided or sold.
• Investment Decisions: Getting out of a risky investment or rebalancing a portfolio.
• Business Changes: Voluntarily closing a business or due to financial troubles.
• Strategic Restructuring: Allocating business assets more effectively.

Keep in mind, liquidating assets can have tax and legal implications. The type, value, and timing of liquidation, along with personal or business situations, all play a role. It's wise to consult a financial professional before taking such steps.

What is the difference between insolvency and liquidation?

Insolvency means not being able to pay debts on time, while liquidation is the legal closure of a company, selling assets to settle debts. Insolvency may lead to liquidation, but not necessarily. Struggling entities can sometimes restructure debts to avoid liquidation. Surprisingly, solvent companies may also choose voluntary liquidation for strategic or personal reasons.

Can a company undergoing liquidation continue trading?

During liquidation, a company cannot keep operating. It becomes insolvent, stops business, and sells assets to settle debts. Liquidation can be voluntary or court-ordered due to insolvency. Continuing to trade during liquidation is illegal, with consequences like personal liability, disqualification, or criminal charges for directors. Seeking advice from an insolvency practitioner before any liquidation is crucial.

The Tax Heaven

Subscribe to the exclusive updates, the tax heaven:.

• Search Menu

Sign in through your institution

• Browse content in Arts and Humanities
• Browse content in Archaeology
• Anglo-Saxon and Medieval Archaeology
• Archaeological Methodology and Techniques
• Archaeology by Region
• Archaeology of Religion
• Archaeology of Trade and Exchange
• Biblical Archaeology
• Contemporary and Public Archaeology
• Environmental Archaeology
• Historical Archaeology
• History and Theory of Archaeology
• Industrial Archaeology
• Landscape Archaeology
• Mortuary Archaeology
• Prehistoric Archaeology
• Underwater Archaeology
• Zooarchaeology
• Browse content in Architecture
• Architectural Structure and Design
• History of Architecture
• Residential and Domestic Buildings
• Theory of Architecture
• Browse content in Art
• Art Subjects and Themes
• History of Art
• Industrial and Commercial Art
• Theory of Art
• Biographical Studies
• Byzantine Studies
• Browse content in Classical Studies
• Classical History
• Classical Philosophy
• Classical Mythology
• Classical Numismatics
• Classical Literature
• Classical Reception
• Classical Art and Architecture
• Classical Oratory and Rhetoric
• Greek and Roman Papyrology
• Greek and Roman Epigraphy
• Greek and Roman Law
• Greek and Roman Archaeology
• Late Antiquity
• Religion in the Ancient World
• Social History
• Digital Humanities
• Browse content in History
• Colonialism and Imperialism
• Diplomatic History
• Environmental History
• Genealogy, Heraldry, Names, and Honours
• Genocide and Ethnic Cleansing
• Historical Geography
• History by Period
• History of Emotions
• History of Agriculture
• History of Education
• History of Gender and Sexuality
• Industrial History
• Intellectual History
• International History
• Labour History
• Legal and Constitutional History
• Local and Family History
• Maritime History
• Military History
• National Liberation and Post-Colonialism
• Oral History
• Political History
• Public History
• Regional and National History
• Revolutions and Rebellions
• Slavery and Abolition of Slavery
• Social and Cultural History
• Theory, Methods, and Historiography
• Urban History
• World History
• Browse content in Language Teaching and Learning
• Language Learning (Specific Skills)
• Language Teaching Theory and Methods
• Browse content in Linguistics
• Applied Linguistics
• Cognitive Linguistics
• Computational Linguistics
• Forensic Linguistics
• Grammar, Syntax and Morphology
• Historical and Diachronic Linguistics
• History of English
• Language Evolution
• Language Reference
• Language Acquisition
• Language Variation
• Language Families
• Lexicography
• Linguistic Anthropology
• Linguistic Theories
• Linguistic Typology
• Phonetics and Phonology
• Psycholinguistics
• Sociolinguistics
• Translation and Interpretation
• Writing Systems
• Browse content in Literature
• Bibliography
• Children's Literature Studies
• Literary Studies (Romanticism)
• Literary Studies (American)
• Literary Studies (Asian)
• Literary Studies (European)
• Literary Studies (Eco-criticism)
• Literary Studies (Modernism)
• Literary Studies - World
• Literary Studies (1500 to 1800)
• Literary Studies (19th Century)
• Literary Studies (20th Century onwards)
• Literary Studies (African American Literature)
• Literary Studies (British and Irish)
• Literary Studies (Early and Medieval)
• Literary Studies (Fiction, Novelists, and Prose Writers)
• Literary Studies (Gender Studies)
• Literary Studies (Graphic Novels)
• Literary Studies (History of the Book)
• Literary Studies (Plays and Playwrights)
• Literary Studies (Poetry and Poets)
• Literary Studies (Postcolonial Literature)
• Literary Studies (Queer Studies)
• Literary Studies (Science Fiction)
• Literary Studies (Travel Literature)
• Literary Studies (War Literature)
• Literary Studies (Women's Writing)
• Literary Theory and Cultural Studies
• Mythology and Folklore
• Shakespeare Studies and Criticism
• Browse content in Media Studies
• Browse content in Music
• Applied Music
• Dance and Music
• Ethics in Music
• Ethnomusicology
• Gender and Sexuality in Music
• Medicine and Music
• Music Cultures
• Music and Media
• Music and Religion
• Music and Culture
• Music Education and Pedagogy
• Music Theory and Analysis
• Musical Scores, Lyrics, and Libretti
• Musical Structures, Styles, and Techniques
• Musicology and Music History
• Performance Practice and Studies
• Race and Ethnicity in Music
• Sound Studies
• Browse content in Performing Arts
• Browse content in Philosophy
• Aesthetics and Philosophy of Art
• Epistemology
• Feminist Philosophy
• History of Western Philosophy
• Metaphysics
• Moral Philosophy
• Non-Western Philosophy
• Philosophy of Language
• Philosophy of Mind
• Philosophy of Perception
• Philosophy of Science
• Philosophy of Action
• Philosophy of Law
• Philosophy of Religion
• Philosophy of Mathematics and Logic
• Practical Ethics
• Social and Political Philosophy
• Browse content in Religion
• Biblical Studies
• Christianity
• East Asian Religions
• History of Religion
• Judaism and Jewish Studies
• Qumran Studies
• Religion and Education
• Religion and Health
• Religion and Politics
• Religion and Science
• Religion and Law
• Religion and Art, Literature, and Music
• Religious Studies
• Browse content in Society and Culture
• Cookery, Food, and Drink
• Cultural Studies
• Customs and Traditions
• Ethical Issues and Debates
• Hobbies, Games, Arts and Crafts
• Natural world, Country Life, and Pets
• Popular Beliefs and Controversial Knowledge
• Sports and Outdoor Recreation
• Technology and Society
• Travel and Holiday
• Visual Culture
• Browse content in Law
• Arbitration
• Browse content in Company and Commercial Law
• Commercial Law
• Company Law
• Browse content in Comparative Law
• Systems of Law
• Competition Law
• Browse content in Constitutional and Administrative Law
• Government Powers
• Judicial Review
• Local Government Law
• Military and Defence Law
• Parliamentary and Legislative Practice
• Construction Law
• Contract Law
• Browse content in Criminal Law
• Criminal Procedure
• Criminal Evidence Law
• Sentencing and Punishment
• Employment and Labour Law
• Environment and Energy Law
• Browse content in Financial Law
• Banking Law
• Insolvency Law
• History of Law
• Human Rights and Immigration
• Intellectual Property Law
• Browse content in International Law
• Private International Law and Conflict of Laws
• Public International Law
• IT and Communications Law
• Jurisprudence and Philosophy of Law
• Law and Politics
• Law and Society
• Browse content in Legal System and Practice
• Courts and Procedure
• Legal Skills and Practice
• Legal System - Costs and Funding
• Primary Sources of Law
• Regulation of Legal Profession
• Medical and Healthcare Law
• Browse content in Policing
• Criminal Investigation and Detection
• Police and Security Services
• Police Procedure and Law
• Police Regional Planning
• Browse content in Property Law
• Personal Property Law
• Restitution
• Study and Revision
• Terrorism and National Security Law
• Browse content in Trusts Law
• Wills and Probate or Succession
• Browse content in Medicine and Health
• Browse content in Allied Health Professions
• Arts Therapies
• Clinical Science
• Dietetics and Nutrition
• Occupational Therapy
• Operating Department Practice
• Physiotherapy
• Radiography
• Speech and Language Therapy
• Browse content in Anaesthetics
• General Anaesthesia
• Clinical Neuroscience
• Browse content in Clinical Medicine
• Acute Medicine
• Cardiovascular Medicine
• Clinical Genetics
• Clinical Pharmacology and Therapeutics
• Dermatology
• Endocrinology and Diabetes
• Gastroenterology
• Genito-urinary Medicine
• Geriatric Medicine
• Infectious Diseases
• Medical Toxicology
• Medical Oncology
• Pain Medicine
• Palliative Medicine
• Rehabilitation Medicine
• Respiratory Medicine and Pulmonology
• Rheumatology
• Sleep Medicine
• Sports and Exercise Medicine
• Community Medical Services
• Critical Care
• Emergency Medicine
• Forensic Medicine
• Haematology
• History of Medicine
• Browse content in Medical Skills
• Clinical Skills
• Communication Skills
• Nursing Skills
• Surgical Skills
• Browse content in Medical Dentistry
• Oral and Maxillofacial Surgery
• Paediatric Dentistry
• Restorative Dentistry and Orthodontics
• Surgical Dentistry
• Medical Ethics
• Medical Statistics and Methodology
• Browse content in Neurology
• Clinical Neurophysiology
• Neuropathology
• Nursing Studies
• Browse content in Obstetrics and Gynaecology
• Gynaecology
• Occupational Medicine
• Ophthalmology
• Otolaryngology (ENT)
• Browse content in Paediatrics
• Neonatology
• Browse content in Pathology
• Chemical Pathology
• Clinical Cytogenetics and Molecular Genetics
• Histopathology
• Medical Microbiology and Virology
• Patient Education and Information
• Browse content in Pharmacology
• Psychopharmacology
• Browse content in Popular Health
• Caring for Others
• Complementary and Alternative Medicine
• Self-help and Personal Development
• Browse content in Preclinical Medicine
• Cell Biology
• Molecular Biology and Genetics
• Reproduction, Growth and Development
• Primary Care
• Professional Development in Medicine
• Browse content in Psychiatry
• Addiction Medicine
• Child and Adolescent Psychiatry
• Forensic Psychiatry
• Learning Disabilities
• Old Age Psychiatry
• Psychotherapy
• Browse content in Public Health and Epidemiology
• Epidemiology
• Public Health
• Browse content in Radiology
• Clinical Radiology
• Interventional Radiology
• Nuclear Medicine
• Radiation Oncology
• Reproductive Medicine
• Browse content in Surgery
• Cardiothoracic Surgery
• Gastro-intestinal and Colorectal Surgery
• General Surgery
• Neurosurgery
• Paediatric Surgery
• Peri-operative Care
• Plastic and Reconstructive Surgery
• Surgical Oncology
• Transplant Surgery
• Trauma and Orthopaedic Surgery
• Vascular Surgery
• Browse content in Science and Mathematics
• Browse content in Biological Sciences
• Aquatic Biology
• Biochemistry
• Bioinformatics and Computational Biology
• Developmental Biology
• Ecology and Conservation
• Evolutionary Biology
• Genetics and Genomics
• Microbiology
• Molecular and Cell Biology
• Natural History
• Plant Sciences and Forestry
• Research Methods in Life Sciences
• Structural Biology
• Systems Biology
• Zoology and Animal Sciences
• Browse content in Chemistry
• Analytical Chemistry
• Computational Chemistry
• Crystallography
• Environmental Chemistry
• Industrial Chemistry
• Inorganic Chemistry
• Materials Chemistry
• Medicinal Chemistry
• Mineralogy and Gems
• Organic Chemistry
• Physical Chemistry
• Polymer Chemistry
• Study and Communication Skills in Chemistry
• Theoretical Chemistry
• Browse content in Computer Science
• Artificial Intelligence
• Computer Architecture and Logic Design
• Game Studies
• Human-Computer Interaction
• Mathematical Theory of Computation
• Programming Languages
• Software Engineering
• Systems Analysis and Design
• Virtual Reality
• Browse content in Computing
• Business Applications
• Computer Security
• Computer Games
• Computer Networking and Communications
• Digital Lifestyle
• Graphical and Digital Media Applications
• Operating Systems
• Browse content in Earth Sciences and Geography
• Atmospheric Sciences
• Environmental Geography
• Geology and the Lithosphere
• Maps and Map-making
• Meteorology and Climatology
• Oceanography and Hydrology
• Palaeontology
• Physical Geography and Topography
• Regional Geography
• Soil Science
• Urban Geography
• Browse content in Engineering and Technology
• Agriculture and Farming
• Biological Engineering
• Civil Engineering, Surveying, and Building
• Electronics and Communications Engineering
• Energy Technology
• Engineering (General)
• Environmental Science, Engineering, and Technology
• History of Engineering and Technology
• Mechanical Engineering and Materials
• Technology of Industrial Chemistry
• Transport Technology and Trades
• Browse content in Environmental Science
• Applied Ecology (Environmental Science)
• Conservation of the Environment (Environmental Science)
• Environmental Sustainability
• Environmentalist Thought and Ideology (Environmental Science)
• Management of Land and Natural Resources (Environmental Science)
• Natural Disasters (Environmental Science)
• Nuclear Issues (Environmental Science)
• Pollution and Threats to the Environment (Environmental Science)
• Social Impact of Environmental Issues (Environmental Science)
• History of Science and Technology
• Browse content in Materials Science
• Ceramics and Glasses
• Composite Materials
• Metals, Alloying, and Corrosion
• Nanotechnology
• Browse content in Mathematics
• Applied Mathematics
• Biomathematics and Statistics
• History of Mathematics
• Mathematical Education
• Mathematical Finance
• Mathematical Analysis
• Numerical and Computational Mathematics
• Probability and Statistics
• Pure Mathematics
• Browse content in Neuroscience
• Cognition and Behavioural Neuroscience
• Development of the Nervous System
• Disorders of the Nervous System
• History of Neuroscience
• Invertebrate Neurobiology
• Molecular and Cellular Systems
• Neuroendocrinology and Autonomic Nervous System
• Neuroscientific Techniques
• Sensory and Motor Systems
• Browse content in Physics
• Astronomy and Astrophysics
• Atomic, Molecular, and Optical Physics
• Biological and Medical Physics
• Classical Mechanics
• Computational Physics
• Condensed Matter Physics
• Electromagnetism, Optics, and Acoustics
• History of Physics
• Mathematical and Statistical Physics
• Measurement Science
• Nuclear Physics
• Particles and Fields
• Plasma Physics
• Quantum Physics
• Relativity and Gravitation
• Semiconductor and Mesoscopic Physics
• Browse content in Psychology
• Affective Sciences
• Clinical Psychology
• Cognitive Psychology
• Cognitive Neuroscience
• Criminal and Forensic Psychology
• Developmental Psychology
• Educational Psychology
• Evolutionary Psychology
• Health Psychology
• History and Systems in Psychology
• Music Psychology
• Neuropsychology
• Organizational Psychology
• Psychological Assessment and Testing
• Psychology of Human-Technology Interaction
• Psychology Professional Development and Training
• Research Methods in Psychology
• Social Psychology
• Browse content in Social Sciences
• Browse content in Anthropology
• Anthropology of Religion
• Human Evolution
• Medical Anthropology
• Physical Anthropology
• Regional Anthropology
• Social and Cultural Anthropology
• Theory and Practice of Anthropology
• Browse content in Business and Management
• Business Ethics
• Business Strategy
• Business History
• Business and Technology
• Business and Government
• Business and the Environment
• Comparative Management
• Corporate Governance
• Corporate Social Responsibility
• Entrepreneurship
• Health Management
• Human Resource Management
• Industrial and Employment Relations
• Industry Studies
• Information and Communication Technologies
• International Business
• Knowledge Management
• Management and Management Techniques
• Operations Management
• Organizational Theory and Behaviour
• Pensions and Pension Management
• Public and Nonprofit Management
• Social Issues in Business and Management
• Strategic Management
• Supply Chain Management
• Browse content in Criminology and Criminal Justice
• Criminal Justice
• Criminology
• Forms of Crime
• International and Comparative Criminology
• Youth Violence and Juvenile Justice
• Development Studies
• Browse content in Economics
• Agricultural, Environmental, and Natural Resource Economics
• Asian Economics
• Behavioural Finance
• Behavioural Economics and Neuroeconomics
• Econometrics and Mathematical Economics
• Economic History
• Economic Systems
• Economic Methodology
• Economic Development and Growth
• Financial Markets
• Financial Institutions and Services
• General Economics and Teaching
• Health, Education, and Welfare
• History of Economic Thought
• International Economics
• Labour and Demographic Economics
• Law and Economics
• Macroeconomics and Monetary Economics
• Microeconomics
• Public Economics
• Urban, Rural, and Regional Economics
• Welfare Economics
• Browse content in Education
• Adult Education and Continuous Learning
• Care and Counselling of Students
• Early Childhood and Elementary Education
• Educational Equipment and Technology
• Educational Strategies and Policy
• Higher and Further Education
• Organization and Management of Education
• Philosophy and Theory of Education
• Schools Studies
• Secondary Education
• Teaching of a Specific Subject
• Teaching of Specific Groups and Special Educational Needs
• Teaching Skills and Techniques
• Browse content in Environment
• Applied Ecology (Social Science)
• Climate Change
• Conservation of the Environment (Social Science)
• Environmentalist Thought and Ideology (Social Science)
• Management of Land and Natural Resources (Social Science)
• Natural Disasters (Environment)
• Pollution and Threats to the Environment (Social Science)
• Social Impact of Environmental Issues (Social Science)
• Sustainability
• Browse content in Human Geography
• Cultural Geography
• Economic Geography
• Political Geography
• Browse content in Interdisciplinary Studies
• Communication Studies
• Museums, Libraries, and Information Sciences
• Browse content in Politics
• African Politics
• Asian Politics
• Chinese Politics
• Comparative Politics
• Conflict Politics
• Elections and Electoral Studies
• Environmental Politics
• Ethnic Politics
• European Union
• Foreign Policy
• Gender and Politics
• Human Rights and Politics
• Indian Politics
• International Relations
• International Organization (Politics)
• Irish Politics
• Latin American Politics
• Middle Eastern Politics
• Political Behaviour
• Political Economy
• Political Institutions
• Political Methodology
• Political Communication
• Political Philosophy
• Political Sociology
• Political Theory
• Politics and Law
• Politics of Development
• Public Policy
• Public Administration
• Qualitative Political Methodology
• Quantitative Political Methodology
• Regional Political Studies
• Russian Politics
• Security Studies
• State and Local Government
• UK Politics
• US Politics
• Browse content in Regional and Area Studies
• African Studies
• Asian Studies
• East Asian Studies
• Japanese Studies
• Latin American Studies
• Middle Eastern Studies
• Native American Studies
• Scottish Studies
• Browse content in Research and Information
• Research Methods
• Browse content in Social Work
• Addictions and Substance Misuse
• Adoption and Fostering
• Care of the Elderly
• Child and Adolescent Social Work
• Couple and Family Social Work
• Direct Practice and Clinical Social Work
• Emergency Services
• Human Behaviour and the Social Environment
• International and Global Issues in Social Work
• Mental and Behavioural Health
• Social Justice and Human Rights
• Social Policy and Advocacy
• Social Work and Crime and Justice
• Social Work Macro Practice
• Social Work Practice Settings
• Social Work Research and Evidence-based Practice
• Welfare and Benefit Systems
• Browse content in Sociology
• Childhood Studies
• Community Development
• Comparative and Historical Sociology
• Disability Studies
• Economic Sociology
• Gender and Sexuality
• Gerontology and Ageing
• Health, Illness, and Medicine
• Marriage and the Family
• Migration Studies
• Occupations, Professions, and Work
• Organizations
• Population and Demography
• Race and Ethnicity
• Social Theory
• Social Movements and Social Change
• Social Research and Statistics
• Social Stratification, Inequality, and Mobility
• Sociology of Religion
• Sociology of Education
• Sport and Leisure
• Urban and Rural Studies
• Browse content in Warfare and Defence
• Defence Strategy, Planning, and Research
• Land Forces and Warfare
• Military Administration
• Military Life and Institutions
• Naval Forces and Warfare
• Other Warfare and Defence Issues
• Peace Studies and Conflict Resolution
• Weapons and Equipment

Last Rights: Liquidating a Company

Professor of Finance

Author Webpage

Senior Bankruptcy Partner

• Cite Icon Cite
• Permissions Icon Permissions

This book examines the business liquidation process — the winding up of the affairs of a company that has either decided voluntarily to liquidate or been forced to liquidate by its creditors. The contributors to the book have substantial hands-on experience in the reorganization and liquidation of businesses, the sale of business assets, and management of commercial litigation. They share their approach to maximizing and creating value in the deteriorating and chaotic business environment that so often leads to a company going out of business. The legal forums for liquidation — bankruptcy, state receivership, federal receivership, and assignment for the benefit of creditors — are explained. The liquidator's role, powers, duties, oversight, and compensation are outlined and the special rules for bankruptcy trustees are set forth. The chapters also cover the major tasks of liquidation including investigation of the company, termination of employees, disposition of assets, evaluation of litigation, resolution of claim, distributions and ultimately, and the dissolution or “winding down” of the company.

Personal account

• Sign in with email/username & password
• Get email alerts
• Save searches
• Purchase content
• Activate your purchase/trial code
• Add your ORCID iD

Institutional access

Sign in with a library card.

• Sign in with username/password
• Recommend to your librarian
• Institutional account management
• Get help with access

Access to content on Oxford Academic is often provided through institutional subscriptions and purchases. If you are a member of an institution with an active account, you may be able to access content in one of the following ways:

IP based access

Typically, access is provided across an institutional network to a range of IP addresses. This authentication occurs automatically, and it is not possible to sign out of an IP authenticated account.

Choose this option to get remote access when outside your institution. Shibboleth/Open Athens technology is used to provide single sign-on between your institution’s website and Oxford Academic.

• Click Sign in through your institution.
• Select your institution from the list provided, which will take you to your institution's website to sign in.
• When on the institution site, please use the credentials provided by your institution. Do not use an Oxford Academic personal account.
• Following successful sign in, you will be returned to Oxford Academic.

If your institution is not listed or you cannot sign in to your institution’s website, please contact your librarian or administrator.

Enter your library card number to sign in. If you cannot sign in, please contact your librarian.

Society Members

Society member access to a journal is achieved in one of the following ways:

Sign in through society site

Many societies offer single sign-on between the society website and Oxford Academic. If you see ‘Sign in through society site’ in the sign in pane within a journal:

• Click Sign in through society site.
• When on the society site, please use the credentials provided by that society. Do not use an Oxford Academic personal account.

If you do not have a society account or have forgotten your username or password, please contact your society.

Sign in using a personal account

Some societies use Oxford Academic personal accounts to provide access to their members. See below.

A personal account can be used to get email alerts, save searches, purchase content, and activate subscriptions.

Some societies use Oxford Academic personal accounts to provide access to their members.

Viewing your signed in accounts

Click the account icon in the top right to:

• View your signed in personal account and access account management features.
• View the institutional accounts that are providing access.

Signed in but can't access content

Oxford Academic is home to a wide variety of products. The institutional subscription may not cover the content that you are trying to access. If you believe you should have access to that content, please contact your librarian.

For librarians and administrators, your personal account also provides access to institutional account management. Here you will find options to view and activate subscriptions, manage institutional settings and access options, access usage statistics, and more.

Our books are available by subscription or purchase to libraries and institutions.

• About Oxford Academic
• Publish journals with us
• University press partners
• What we publish
• New features  
• Open access
• Rights and permissions
• Accessibility
• Advertising
• Media enquiries
• Oxford University Press
• Oxford Languages
• University of Oxford

Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide

• Copyright © 2024 Oxford University Press
• Cookie settings
• Cookie policy
• Privacy policy
• Legal notice

This Feature Is Available To Subscribers Only

Sign In or Create an Account

This PDF is available to Subscribers Only

For full access to this pdf, sign in to an existing account, or purchase an annual subscription.

Liquidation of a Company: Detailed Guide

Quick Summary

• Embark on the journey of understanding the intricate process of company liquidation!
• From appointing a liquidator to distributing assets, explore the complexities and implications of this emotional event.
• Whether voluntary or involuntary, the types of liquidation shed light on crucial decisions faced by stakeholders.
• Learn the steps to prepare for liquidation, ensuring a smooth transition while minimising financial losses and legal issues.
• Discover the critical role of liquidators in overseeing the process and safeguarding stakeholders’ interests.
• Stay informed, seek legal advice, and plan for the future as you navigate the liquidation journey. Explore our comprehensive guide for a deeper understanding of this essential process!

Table of Contents

The liquidation process of a company is a complex and often emotional event that occurs when a company can no longer pay its debts or decides to close its business. The process involves appointing a liquidator, who takes control of the company’s assets, identifies and values the assets, sells the assets to pay off creditors, distributes the proceeds to creditors (with secured creditors having priority), distributes remaining funds to shareholders, and prepares a final report detailing the liquidation process. The largest bankruptcy reported to date was Lehman Brothers , a U.S.-based company. Their declaration of the company becoming insolvent triggered a domino effect on the international banking sector resulting in the Great Recession. In this blog, we will explore the meaning, types, and process of liquidation and the steps a company should take before entering the liquidation process. We will also discuss the appointment and role of liquidators in the liquidation process.

Understanding the Liquidation Process

The reason for the liquidation of a company can vary from company to company. A company enters liquidation when it can’t pay its debts. Or if the shareholders or directors decide to close the business. There can also be circumstances when the Court orders liquidation. Regardless of the reason, the purpose of liquidation of a company is only one. The liquidation process helps the shareholders in paying back their debtors and creditors.

Types of Liquidation

The types of liquidation can be differentiated based on the following grounds:

Voluntary Liquidation

This type of liquidation is initiated by the shareholders or directors of the company. It occurs when they decide that the company should be wound up and its affairs settled.

Involuntary Liquidation

In this type of liquidation, the process is initiated by the creditors or regulatory bodies of the company. This occurs when the company fails to pay its debts or comply with regulations.

Members’ Voluntary Liquidation

This type of liquidation takes place when the company is solvent and the shareholders decide to wind up the company. It is also known as a solvent liquidation.

Creditors’ Voluntary Liquidation

This type of liquidation occurs when the company is insolvent, and the creditors agree to wind up the company. It is also known as an insolvent liquidation.

Compulsory Liquidation

In this type of liquidation, the court orders the liquidation of the company due to legal violations or insolvency. Understanding these types of liquidation is essential for companies and stakeholders to make informed decisions regarding their financial affairs.

Preparing for Liquidation

Doing preparations for the liquidation of company is an important step. A well-planned process ensures that the process is carried out smoothly and efficiently. Hence, in the event of liquidation of a company, adequate preparation can-

• Minimise financial losses
• Prevent legal issues
• Meet all obligations
• Protect the company’s reputation and prevent damage to its brand image

Steps to Take Before Liquidation

Thus, a company should take steps before entering the liquidation process. These steps include the following –

• Assessing the company’s financial situation,
• Developing a liquidation plan,
• Notifying stakeholders,
• Appointing a liquidator,
• Protecting assets from any damage, and
• Ensuring that all legal requirements are met

Process of Liquidation

Further, here is a step-by-step process that a company must follow to liquidate itself-

Pass a Board Resolution

The first step is for the board of directors to pass a resolution for the liquidation of a company. The board must meet and pass a resolution to authorise the liquidation process.

Appoint a Liquidator

Once the resolution is passed by the board, the next step is to appoint a liquidator. A court-appointed liquidator or insolvency practitioner generally oversees the liquidation process. Even the board of directors appoints a licensed insolvency practitioner as the liquidator who is responsible for

• Taking control of the company’s assets
• Identifying and valuing the assets
• Selling the assets to pay off creditors
• Distributing the proceeds to creditors (secured creditors have priority),
• Distributing remaining funds to shareholders, and
• Preparing a final report detailing the liquidation process.

Notice to Creditors

Once a liquidator is appointed, the company gives notice to all its creditors. The notice informs the creditors about the liquidation decision. Moreover, it is ideal for providing the following to creditors –

• Details of the liquidator’s appointment
• The date of the liquidation, and
• The deadline for submitting claims

Sale of Assets

Once creditors are informed about the liquidation of the company, the liquidator can proceed with the next step. They can then sell the company’s assets. The sale of assets may occur through various methods, such as –

• Private sales, 
• Public auctions,
• Sales to a company’s directors or shareholders

It is worth noting here that these sale proceeds are used to pay the company’s creditors. Thus, the liquidator ensures that the assets are sold for the best possible price. This further ensures that enough amount is available to pay creditors.

Distribution of Funds

After the sale of assets, the liquidator distributes the proceeds among the creditors. The creditors are paid in order of priority, with secured creditors being paid first, followed by unsecured creditors. 

Final Report

The liquidator also submits a detailed final report to the Registrar of Companies. This final report provides details of the liquidation process, including the sale of assets and the distribution of funds to creditors.

Dissolution

With the submission of the Final Report by the liquidator, the liquidation of the company is done and it gets dissolved. The Registrar of Companies removes the company from the register of companies, and the company will cease to exist.

For instance, XYZ Company is a small manufacturing firm facing financial difficulties. The company decides to go through liquidation. So, for liquidation:

• The company’s board of directors passes a resolution to liquidate the company.
• A licensed insolvency practitioner is appointed as the liquidator. 
• The liquidator issues notice to all stakeholders, including creditors, shareholders, and employees, informing them of the liquidation process. 
• The company’s assets, including equipment and properties, are valued.
• The liquidator sells these assets to generate funds to pay off its debts. 
• The funds generated from the sale are then used to pay off creditors, with secured creditors being paid first. 
• If there are any remaining assets, they are distributed to shareholders. 
• Finally, the company is terminated and struck off the Companies Register. 

Appointment and Role of Liquidators

A liquidator is a licensed insolvency practitioner. Liquidators may be appointed by a court, the company’s shareholders or creditors, or the company itself. In some jurisdictions, only licensed insolvency practitioners may act as liquidators. He is appointed to oversee the process of liquidation of company. So, their role and duties include the following –

• Taking control of the company’s affairs,
• Investigating the company’s affair,
• Identifying and verifying creditors’ claims,
• Sell off the company’s assets, 
• Distributing the proceeds to creditors according to the priority of their claims,
• Preparing reports for creditors and the Court, and 
• Pursuing legal action against directors or shareholders if necessary.

Liquidation of Company and its Impact on Stakeholders

When a company undergoes liquidation, its assets are sold off. The amount received is utilised to repay its debts, and any remaining funds are distributed among the shareholders. Hence, liquidation significantly affects a company’s stakeholders, including employees, creditors, and shareholders.

• Liquidation of a company can lead to job loss for employees.
• Employees may not receive their total compensation. These can include wages, bonuses, and benefits owed to them.
• Some employees may lose their retirement benefits if the company cannot fund their pension plan.
• It can take time for employees to find new employment and regain financial stability.

Liquidation can significantly impact employees. The specific impact of liquidation on employees can vary depending on the liquidation circumstances. But here are some common impacts of the liquidation of a company on employees:

Creditors are typically the first to be affected when a company is liquidated. They stand to lose significant money if the company can’t repay its debts. Creditors usually fall into two categories: secured and unsecured. 

 Secured Creditors

These creditors have a claim on specific assets of the company, which they can sell to recover their money. Secured creditors are assured of getting their debts paid.

Unsecured Creditors

These creditors don’t have a claim on any specific assets. Thus, they are at greater risk of losing their money. 

Shareholders

Shareholders are the owners of the company and are entitled to a share of the profits. But, in the case of liquidation, the priority changes. These shareholders are at the bottom of the priority list when it comes to repayment. 

So, they only receive any remaining funds after all the creditors have been paid in full. This means that shareholders may receive little money from the liquidation of a company. In some cases, shareholders may lose their entire investment, i.e., no money.

What Happens After Liquidation?

The liquidation process takes a significant amount of time and resources. Moreover, it can have long-term effects on the stakeholders involved. But, it is an important process. After all, it allows for the winding up of a company’s affairs and ensures that all parties receive their fair share of the remaining assets. 

After the liquidation process, the company ceases to exist as a legal entity. In other words, it means:

• The assets have been sold off to repay its debts and obligations to creditors,
• Any remaining funds have been distributed to shareholders,
• The company’s directors and officers no longer have any responsibilities or authority over the company. 
• Any contracts or agreements the company had in place are terminated, and 
• Employees are laid off or terminated

Overall, liquidation is a difficult and often emotional time for all involved. Yet, ensuring that the process is carried out properly and fairly is important. Regardless of the stage, the interests of all stakeholders are paramount.

Also Read: Understanding The Different Types Of Companies In India And Their Features

Liquidation of Company and Legal Advice

Liquidation can be a complicated and stressful process. Hence, seeking professional advice from experienced liquidators can be critical. Legal assistance can ensure a smooth and efficient liquidation of a company. 

A few such pieces of advice are:

• Be transparent with stakeholders and keep them informed of developments throughout the process. 
• The company should also prioritise the sale of assets to generate maximum value.
• Ensure that funds are distributed fairly to creditors. 
• Proper record-keeping and documentation are critical to avoiding legal issues and protecting the company’s reputation. 
• Work closely with liquidators and other professionals, such as lawyers and accountants, to ensure that all legal requirements are met, and
• Plan for the future and consider the options for restructuring or reorganising the business to minimise the impact on stakeholders.

Besides, a company can avoid the process of liquidating a company. Increasing revenue, monitoring debt levels, staying current on tax obligations, developing contingency plans, etc., are a few ways to escape liquidation circumstances.

The Liquidation of Company Process Explained

To summarise, liquidation is the process of closing down a company when it can no longer pay its debts or if the shareholders/directors decide to close the business. It involves appointing a liquidator who takes control of the company’s assets, identifies and values them, sells the assets to pay off creditors, distributes the proceeds to creditors, and shareholders, and prepares a final report.

The liquidation process can be voluntary, involuntary, members’ voluntary, creditors’ voluntary, or compulsory. Before entering the liquidation process, a company should take steps like assessing its financial situation, developing a liquidation plan, notifying stakeholders, appointing a liquidator, protecting assets, and ensuring that all legal requirements are met.

Finally, the company is dissolved, and the Registrar of Companies removes it from the register of companies.

Innovative, low-investment ideas for the hidden entrepreneur in you! Explore our guide on  Business Ideas .

Frequently Asked Questions (FAQ’s)

What is meant by the liquidation of a company.

The liquidation of a company refers to the process of bringing a company’s operations to an end. It happens by disposing of its assets to repay its debts and obligations. It also involves – 1. Selling off the company’s assets, 2. Paying off creditors, 3. Distributing the remaining funds to shareholders, and 4. Eventually, dissolving the company.

What is the process of liquidation of a company? 

The liquidation process of a company involves several steps. They are – 1. Assessing the company’s financial situation, 2. Developing a liquidation plan, 3. Notifying stakeholders, 4. Appointing a liquidator, 5. Selling assets, paying off creditors, and 6. Distributing remaining funds to shareholders. 7. The liquidator oversees the process and ensures all legal requirements are met.

What are the 3 types of liquidation? 

The three types of liquidation are – 1. Voluntary liquidation, 2. Compulsory liquidation, and 3. Creditor’s voluntary liquidation. In a voluntary liquidation, the company decides to liquidate itself. In compulsory liquidation, the court orders the company’s liquidation due to insolvency. The company’s creditors initiate the liquidation process in the creditor’s voluntary liquidation.

What is the main purpose of liquidation?

The main purpose of liquidation is to bring the affairs of a company to a close in an orderly and efficient manner. It aims to repay creditors and meet the company’s financial obligations. At the same time, it ensures that shareholders receive any remaining funds. Moreover, liquidation allows the company’s assets to be sold off and potentially re-purposed. Thus, minimising financial losses for all parties involved.

Start Online Q&A Business

To read more related articles, click here.

Got a question on this topic?

Related Articles

Start q&a business online.

• Privacy Policy
• Chegg Study
• Learn a language
• Writing Support
• Expert Hiring and Payment Dashboard
• ज्ञानकोश Earn Online
• Career Guidance
• General Knowledge
• Web Stories

Chegg India does not ask for money to offer any opportunity with the company. We request you to be vigilant before sharing your personal and financial information with any third party. Beware of fraudulent activities claiming affiliation with our company and promising monetary rewards or benefits. Chegg India shall not be responsible for any losses resulting from such activities.

• Chegg Inc. Compliance

© 2024 Chegg Inc. All rights reserved.

Office Address

New Baneshwor (opposite Alfa Beta Complex), Kathmandu, Nepal

Phone Number

+977 - 9851 253 180

Email Address

[email protected]

Liquidation vs. Bankruptcy: Understanding the Differences

Last updated February 1, 2024 by Dipendra Shah

In the complex world of financial distress, businesses often find themselves at a crossroads. They consider options like liquidation and bankruptcy. These terms are frequently used interchangeably. However, they represent distinct processes with different implications.

In this blog post, we’ll unravel the mysteries surrounding liquidation and bankruptcy. We’ll shed light on their key differences.

Understanding Liquidation

Liquidation is the process of selling off a company’s assets to generate cash and settle its debts. This can be a voluntary decision by the business or enforced by creditors.

Types of Liquidation

• Voluntary Liquidation : When a company decides to cease operations and liquidate its assets voluntarily.
• Compulsory Liquidation : When a court orders the liquidation of a company due to insolvency.

The primary objective of liquidation is to distribute the proceeds from asset sales among creditors, ensuring they receive their fair share.

Understanding Bankruptcy

Bankruptcy is a legal process that provides protection to businesses facing financial distress. It allows them to restructure debts, develop a repayment plan, and continue operations.

Types of Bankruptcy

• Chapter 7 : Involves the liquidation of assets to pay off debts.
• Chapter 11 : Enables businesses to reorganize and continue operations while repaying creditors over time.

Bankruptcy aims to provide a path for businesses to emerge from financial turmoil, either through debt restructuring or, in the case of Chapter 7, a fresh start.

Key Differences

• Liquidation leads to the closure of the business.
• Bankruptcy offers a chance for the business to continue operating after restructuring.

Decision-Making

• Liquidation can be voluntary or court-ordered.
• Bankruptcy requires a legal filing and court approval.

Debt Handling

• Liquidation prioritizes creditors’ claims based on seniority.
• Bankruptcy aims to create a fair repayment plan for all creditors.

Conclusion :

In conclusion, both liquidation and bankruptcy address financial distress. They represent distinct approaches. Liquidation involves selling assets to settle debts. It often leads to the closure of the business. On the other hand, bankruptcy provides a legal framework for businesses to reorganize, repay debts, and potentially continue operations.

Understanding these differences is crucial for businesses facing financial challenges. It helps them make informed decisions about their future.

• How to Check and Reserve Company Name Online in Nepal
• Companies Act 2063 in Nepali and English
• Articles of Association: A Guide to Drafting AoA in Nepal
• Memorandum of Association: A Guide to Drafting MoA in Nepal
• Latest Company Registration Fees in Nepal 2024
• How to Register a Company in Nepal
• How to Register a Business PAN in Nepal
• How to Register for VAT in Nepal Online
• List of Companies Mandatory to Register for VAT in Nepal
• How to Open a Company Bank Account in Nepal
• How to Change a Company Name in Nepal
• How to Change Company Address in Nepal
• How to Legally Close a Company in Nepal
• New Company Registration
• Company Update
• Share Transfer
• Company Close

Register Your Business With Company Sewa

Get your new company registered within 2 to 3 days after name approval. Our registration package includes:

• Company Registration & PAN/VAT Registration
• Rental Agreement
• Company Stamp
• Minutes to Open a Bank Account

‹ Back , this will close the modal.

All Registers

Maintained by the companies office.

Where you can search for and maintain companies incorporated or registered in New Zealand

Where you can search for or register financial products and managed investment schemes offered under the Financial Markets Conduct Act 2013

Where you can search for or register individuals, businesses and organisations that offer financial services in New Zealand

Where you can search for and register security interests in personal property

• Approved Overseas Auditors & Associations of Accountants Approved Overseas Auditors & Associations of Accountants
• Auditors Auditors
• Building Societies Building Societies
• Charitable Trusts Charitable Trusts
• Climate-related Disclosures Climate-related Disclosures
• Contributory Mortgage Brokers Contributory Mortgage Brokers
• Credit Unions Credit Unions
• Friendly Societies Friendly Societies
• Incorporated Societies Incorporated Societies
• Industrial & Provident Societies Industrial & Provident Societies
• Insolvency Practitioners Insolvency Practitioners
• Limited Partnerships (New Zealand & Overseas) Limited Partnerships (New Zealand & Overseas)
• Overseas Issuers Overseas Issuers
• Participatory Securities Participatory Securities
• Registered Unions Registered Unions
• Retirement Villages Retirement Villages
• Screen Industry Organisations Screen Industry Organisations
• Superannuation Schemes Superannuation Schemes
• Unit Trusts Unit Trusts
• Directors & shareholders
• Help & updates

Companies filters

• External admin

Directors & shareholders filters

• Shareholders

Help & updates filters

No matches found for ″ ″

More options

• Advanced search
• Disqualified/Prohibited director or manager search
• All help guides

Sorry, we cannot search for companies at the moment. You could try searching the register directly instead.

We couldn't find a company matching  "[keyword]".

Try checking the spelling of your search or reducing the number of words, or try searching by company number or NZBN.

Sorry, we cannot search for directors or shareholders at the moment. You could try searching the register directly instead.

We couldn't find a director or shareholder matching "[keyword]".

Try checking the spelling of your search or reducing the number of words. If you're searching for a shareholding company, you can try searching by company number or NZBN.

Sorry we cannot search the help and updates at the moment. You could try browsing the Help Centre instead.

Access the Help Centre

We couldn't find a page matching "[keyword]".

Check the spelling of your search, or reduce the number of words. You could also try browsing the Help Centre instead.

• What happens during liquidation

An overview of the liquidation process

If your company is unable to pay its debts on time, it may be placed into liquidation.

What liquidation means

A company can be placed into liquidation, and a liquidator appointed by:

• court order, or
• a resolution by your creditors at a watershed meeting.

Liquidation takes effect immediately, and liquidated companies are closed down, and removed from the Companies Register.

The role of a liquidator

If your company enters into liquidation, a liquidator is appointed to:

• investigate your company's financial affairs
• establish the cause of its failure
• investigate possible offences by your company or a director of your company.

A liquidator must be a licensed insolvency practitioner .

The liquidator takes control of, and freezes all of, your company's unsecured assets which are then sold to repay your creditors and shareholders.

If necessary the liquidator holds a creditors' meeting to:

• help identify any previously unknown assets
• gather information about your company
• give creditors an opportunity to raise and discuss issues relevant to the liquidation.

The liquidator has significant powers to contact and deal with your company's:

• shareholders
• past and present employees
• receivers, accountants, auditors and bank officers
• others involved in forming or managing the company.

The liquidator must prepare regular reports about the activities and outcomes of the liquidation for creditors and shareholders, and file these reports with the Companies Office.

Your responsibilities as a director

If your company goes into liquidation, you remain in office but your powers as a director are limited.

• cooperate with the liquidator so that the financial and business affairs of your company can be resolved fairly and equitably, and
• provide your company's accounts, records and any other information the liquidator requires.

When liquidation ends

At the end of the liquidation process, the liquidator must prepare and file with us final and summary reports on the activities and outcome of the liquidation.

The liquidator must also give public notice of the intention to remove your company from the Companies Register.

We must wait 20 working days from the date of that public notice to allow any objections to the removal of your company to be filed.

Filing annual returns

Once your company goes into liquidation it's no longer required to file an annual return.

All help topics

Before you start a company 5 guides.

Get an overview of how companies are structured, find out about the company records you need to keep, and what's involved when you incorporate with and report to the Companies Office.

• Before you set up a company
• Choosing a type of company for your business
• Keeping company records
• Company meetings
• Reporting to the Companies Office

Starting a company 11 guides

You need to comply with New Zealand laws when you incorporate your company with the Companies Office, including reserving a company name, appointing directors, issuing shares and registering for tax.

• Incorporating a company
• Reserving a name for a new company
• Company addresses
• Tax registration
• Registering the appointment of a director
• Registering a shareholder
• Filing director and shareholder consent forms
• Issuing shares in a company
• Incorporating with a company constitution
• How overseas companies set up as a NZ business
• Ultimate holding companies

Keeping company details up to date 13 guides

Once your company is registered with the Companies Office, nominate who will have authority to file your annual returns, and update your name, address, constitution, director and shareholder details.

• Confirming your authority to manage information
• How to file an annual return
• Getting a copy of your company information
• Updating company addresses
• Updating a director's details
• Updating a shareholder's details
• Managing share allocations
• Changing the name of a company
• Adding, amending or removing a company constitution
• Changing your financial reporting month
• Adding or updating additional NZBN information

Shares and shareholders 7 guides

When you incorporate, you must provide details of all company shares and shareholders. As changes occur, you must update this information on your own share register and in your company's annual return.

• What it means to be a shareholder
• Distributions to shareholders

Company directors 8 guides

Directors have responsibilities to their company and shareholders, and under the Companies Act 1993. You must register all your directors with the Companies Office and they must sign a consent form.​

• Resources for new directors
• What it means to be a director
• Who can be a director
• Banned directors
• Reporting a director

Filing annual returns 8 guides

Find out about filing an annual return — the information you need to update, how to change your filing month or request a time extension — and what happens if you don't file your annual return by the due date.

• What an annual return is
• Managing your annual return
• Forgotten your RealMe® username or password
• Receiving annual return reminders
• Requesting an extension to file an annual return
• Changing your annual return filing month
• Annual returns for overseas companies

Complying with the law 11 guides

Find out how New Zealand law affects the directors and shareholders of your company, and your responsibility to create and maintain accurate company records, report to us and file financial statements.

• Who needs to submit financial statements
• How we enforce the law
• Making a complaint

Financial reporting 7 guides

​Some large New Zealand and overseas companies, and all FMC reporting entities must submit audited annual financial statements to the Companies Office.

• How to submit financial statements
• Preparing financial statements
• Financial reporting fees and penalties
• Financial reporting for FMC reporting entities
• Reporting for NZ companies registered in Australia

Managing an overseas company in New Zealand 11 guides

Before they can carry out some business activities, companies incorporated in other countries, including Australia, must register with the Companies Office and then keep their company details up to date.

• Registering your company to do business in NZ
• How to transfer incorporation to NZ
• Financial reporting for overseas companies
• Updating directors' details
• Updating addresses of overseas companies
• Changing the name of an overseas company
• Updating the constitution of an overseas company
• How to remove a company from the Overseas Register

Closing a company 11 guides

When your company closes down you need to remove it from the register. Your company can be removed if it amalgamates with another company or doesn't file its annual return.

• Before you close your company
• Removing your company from the register
• When the Registrar removes your company
• Objecting to the removal of a company
• Withdrawing an objection
• How companies amalgamate
• Before you apply for amalgamation
• Preparing documents for a short-form amalgamation
• Preparing documents for a long-form amalgamation
• Applying for company amalgamations

Restoring a company to the register 4 guides

Only some companies can be reinstated to the Companies Register once they've been removed. Find out who can apply, what evidence to provide and if you should apply to the Registrar or the High Court.

• Before you apply to restore a company
• Applying to the Registrar to restore a company
• Reasons and evidence for restoring a company
• Applying to the High Court to restore a company

When your company fails 9 guides

Find out about voluntary administration, receivership and liquidation (external administration), and the roles and responsibilities of those appointed to manage your company's affairs.

• What happens during voluntary administration
• Appointment and responsibilities of administrators
• What happens after a watershed meeting
• What happens during receivership
• Appointment and responsibilities of receivers
• Appointment and responsibilities of liquidators
• Filing by administrators, liquidators or receivers
• Holding creditors' meetings

Managing your online account 8 guides

Creating an account with the Companies Office allows you to complete the majority of your transactions online. It's free to set up, but fees apply for some transactions, such as filing annual returns.

• Setting up your online services account
• Updating your online services account details
• Customising your online services account
• Schedule of fees
• Managing payments on the Companies Register
• Lodging other documents

Getting support to use the Companies Register 8 guides

Get help with any technical problems you have using the register, such as uploading documents or searching for companies, directors and shareholders.

• Uploading documents to the Companies Register
• Filing documents with electronic signatures
• Searching the Companies Register
• Searching the PPSR from the Companies Register
• Searching using other applications
• NZBN and the Companies Register
• Suppressing a residential address on the register

Accounting for Liquidation of a Company | Accounting

In this article we will discuss about the accounting for liquidation of a company.

Liquidation— Bankruptcy :

When an insolvent company is to be liquidated, the provisions established by Chapter 7 of the Bankruptcy Reform Act regulate the process. This set of laws was written to provide an orderly and equitable structure for selling assets and paying debts. To this end, several events occur after the court has entered an order for relief in either a voluntary or involuntary liquidation.

To begin, the court appoints an interim trustee to oversee the company and its liquidation. This individual is charged with preserving the assets and preventing loss of the estate. Thus, creditors are protected from any detrimental actions that management, the ownership, or any of the other creditors might undertake. The interim trustee (as well as the permanent trustee, if the creditors subsequently select one) must perform a number of tasks shortly after being appointed.

ADVERTISEMENTS:

These functions include (but are not limited to):

i. Changing locks and moving all assets and records to locations the trustee controls.

ii. Posting notices that the U.S. trustee now possesses all business assets and that tampering with or removing any contents is a violation of federal law.

iii. Compiling all financial records and placing them in the custody of the trustee’s own accountant.

iv. Obtaining possession of any corporate records including minute books and other official documents.

The court then calls for a meeting of all creditors who have appropriately filed a proof of claim against the debtor. This group may choose to elect a permanent trustee to replace the person temporarily appointed by the court. A majority (in number as well as in dollars due from the company) of the unsecured, non-priority creditors must agree to this new trustee. If the credi­tors cannot reach a decision, the interim trustee is retained.

As an additional action taken to ensure fairness, a committee of between 3 and 11 unse­cured creditors is selected to help protect the group’s interests.

This committee of creditors does the following:

i. Consults with the trustee regarding the administration of the estate.

ii. Makes recommendations to the trustee regarding the performance of the trustee’s duties.

iii. Submits to the court any questions affecting the administration of the estate.

Role of the Trustee :

In the liquidation of any company, the trustee is a central figure. This individual must recover all property belonging to the insolvent company, preserve the estate from any further deterio­ration, liquidate noncash assets, and make distributions to the proper claimants.

Additionally, the trustee may need to continue operating the company to complete business activities that were in progress when the order for relief was entered. To accomplish such a multitude of objectives, this individual holds wide-ranging authority in bankruptcy matters, including the right to obtain professional assistance from attorneys and accountants.

The trustee can also void any transfer of property (known as a preference) made by the debtor within 90 days prior to filing the bankruptcy petition if the company was already insol­vent at the time. The recipient must then return these payments so that they can be included in the debtor’s free assets.

This rule is intended to prevent one party from gaining advantage over another in the some­times hectic period just before a bankruptcy petition is filed. Return of the asset is not neces­sary, however, if the transfer was for no more than would have been paid to this party in a liquidation.

Not surprisingly, the trustee must properly record all activities and report them periodically to the court and other interested parties. The actual reporting rules that the Bankruptcy Reform Act created are quite general- “Each trustee, examiner, and debtor-in-possession is required to file ‘such reports as are necessary or as the court orders.’ In the past there have been no specific guidelines or forms used in the preparation of these reports.”

Consequently, a wide variety of statements and reports may be encountered in liquidations. However, the trustee commonly uses a statement of realization and liquidation to report the major aspects of the liquidation process.

This statement is designed to convey the following information:

i. Account balances reported by the company at the date on which the order for relief was filed.

ii. Cash receipts generated by the sale of the debtor’s property.

iii. Cash disbursements the trustee made to wind up the affairs of the business and to pay the secured creditors.

iv. Any other transactions such as the write-off of assets and the recognition of unrecorded lia­bilities.

Any cash that remains following this series of events is paid to the unsecured creditors after the priority claims have first been settled.

Statement of Realization and Liquidation Illustrated :

To demonstrate the production of a statement of realization and liquidation, the information previously presented for Chaplin Company will be used again. Assume that company officials have decided to liquidate the business, a procedure regulated by Chapter 7 of the Bankruptcy Reform Act. The court appointed an interim trustee whom the creditors then confirmed to oversee the liquidation of assets and distribution of cash.

The dollar amounts resulting from this liquidation will not necessarily agree with the bal­ances used in creating the statement of financial affairs in Exhibit 13.2. The previous state­ment was based on projected sales and other estimations, whereas a statement of realization and liquidation reports the actual transactions and other events as they occur. Consequently, discrepancies should be expected.

Assume the following transactions occur in liquidating this company:

Liquidation Transactions of Chaplin Company—2009 :

July 1 – The accounting records in Exhibit 13.1 are adjusted to the correct balances as of June 30, 2009, the date on which the order for relief was entered. Hence, the dividends receivable, interest payable, and additional payroll tax liability are recognized.

Liquidation Report Template

Liquidation Interim Progress Report

Voluntary Liquidation Report

Liquidation Annual Report of Progress

Livestock Liquidation Report

Liquidation Expense Report

Basic Liquidation Report

Formal Liquidation Report

Liquidation Report Example

Liquidation Audit Report

Liquidation Report on Progress

Public Liquidation Report

Voluntary Liquidation Final Report

Liquidation Report in PDF

Liquidation Global Property Fund Report

Sample Liquidation Report

Standard Liquidation Report

Expenditure Liquidation Report

Corporate Liquidation Report

1. creditors’ voluntary liquidation (cvl), 2. compulsory liquidation, 3. members’ voluntary liquidation (mvl).

• Trade suppliers
• Value-Added Tax (VAT)
• Corporation Tax
• Unsecured bank debt
• Business rates
• Arrears of pay, redundancy and tribunal claims

Share This Post on Your Network

You may also like these articles, medical report.

In this comprehensive guide, we will explore the essentials of creating an effective Medical Report. Whether you are a healthcare professional or need to understand how to document medical…

Training Report

In this comprehensive guide, we will delve into the intricacies of creating an effective Training Report. Whether you are new to this process or looking to enhance your existing…

browse by categories

• Questionnaire
• Description
• Reconciliation
• Certificate
• Spreadsheet

Information

• privacy policy
• Terms & Conditions

Liquidating a Corporation: Steps and Legal Considerations

Liquidating a corporation involves a multifaceted process requiring meticulous attention to detail and strict compliance with legal protocols. The first step is filing dissolution papers with the relevant state agency, followed by formal notification of creditors and stakeholders. Debts and liabilities must be settled, and corporate assets distributed to stakeholders according to strict legal guidelines. Tax obligations, employee entitlements, and finalizing the corporate wind-down must also be addressed. With numerous steps and legal considerations, a structured approach is vital for a seamless cessation of operations, and a thorough understanding of the process is pivotal to avoid potential penalties or delays, and facilitating a successful outcome.

Table of Contents

Filing Dissolution Papers With State

Upon deciding to liquidate a corporation, one of the initial steps is to formally notify the state of the corporation's intention to dissolve by filing the appropriate dissolution papers with the relevant state agency. This notification is a critical step in the dissolution process, as it provides official notice to the state and the public that the corporation is ceasing to exist.

State requirements for filing dissolution papers vary, but generally, corporations must submit articles of dissolution or a similar document to the state agency responsible for business registrations. The specific requirements and filing fees differ from state to state, and corporations must comply with the specific regulations governing their jurisdiction. Filing fees also vary, ranging from a few hundred to several thousand dollars, depending on the state and type of corporation. It is vital to review the applicable state laws and regulations to guarantee compliance with the necessary procedures and to avoid any potential penalties or delays. By fulfilling this initial step, corporations can begin the dissolution process, ultimately leading to the formal liquidation of the business entity.

Notifying Creditors and Stakeholders

After formally notifying the state of the corporation's intention to dissolve, the next step is to provide formal notice to creditors and stakeholders, as required by law, to secure that all parties with a vested interest are aware of the corporation's dissolution. This notification process is pivotal to confirm that all parties are informed and have the opportunity to respond accordingly.

Creditor communication is a key aspect of this process, as it allows creditors to understand the implications of the corporation's dissolution on their outstanding claims. This communication should include necessary details such as the corporation's intention to dissolve, the deadline for submitting claims, and the process for resolving outstanding debts.

Effective stakeholder engagement is also imperative in this process, as it enables stakeholders to understand the implications of the corporation's dissolution on their interests. This may include providing notice to shareholders, employees, customers, and suppliers, among others. By providing timely and transparent notice, the corporation can confirm that all parties are informed and able to respond appropriately to the dissolution process.

Settling Debts and Liabilities

How do corporations navigate the complex process of settling debts and liabilities, a vital step in the dissolution process that requires meticulous attention to detail and adherence to legal protocols? This phase involves a thorough review of the corporation's financial obligations to guarantee that all debts and liabilities are accounted for and settled accordingly.

Priority creditors, such as secured creditors and tax authorities, must be addressed first, followed by unsecured creditors. A detailed review of the corporation's financial records is vital to identify all outstanding debts and liabilities. Debt forgiveness may be negotiated with certain creditors, providing an opportunity for the corporation to reduce its liabilities. However, any debt forgiveness agreements must be carefully documented and approved by the relevant stakeholders.

Throughout the process, it is vital to adhere to relevant laws and regulations, as well as to maintain accurate and detailed records of all transactions. Failure to properly settle debts and liabilities can lead to legal repercussions and financial penalties, making it vital to approach this step with diligence and attention to detail. By prioritizing debt settlement and adhering to legal protocols, corporations can guarantee a smooth and efficient liquidation process.

Distributing Corporate Assets

Once the corporation's debts and liabilities have been settled, the next step involves distributing its remaining assets to stakeholders, a process governed by strict legal guidelines and protocols. This process requires meticulous planning and execution to guarantee that assets are allocated fairly and in accordance with applicable laws and regulations.

Asset valuation is a critical component of this process, as it determines the value of the corporation's remaining assets. A thorough asset valuation must be conducted to establish a fair market value for each asset, verifying that stakeholders receive a proportionate share of the corporation's remaining wealth.

Priority allocation is also vital, as it dictates the order in which stakeholders receive distributions. Typically, secured creditors and preferred shareholders receive priority, followed by unsecured creditors and common shareholders. The distribution process must be carefully managed to confirm that each stakeholder receives their entitled share, and that the corporation's assets are depleted in an orderly and transparent manner. By adhering to legal protocols and guidelines, the corporation can guarantee a smooth and equitable distribution of its remaining assets.

Complying With Tax Obligations

During the liquidation process, the corporation must fulfill its tax obligations to avoid any potential liabilities or penalties, facilitating a seamless shift towards dissolution. Complying with tax obligations is vital to guarantee a smooth liquidation process. The corporation must file all necessary tax returns, including final income tax returns, employment tax returns, and any other required filings. It is imperative to obtain any necessary filing extensions to avoid penalties and provide sufficient time to gather all necessary documentation. In addition, the corporation should be prepared for a potential tax audit, maintaining detailed and accurate records to support all tax filings. In the event of an audit, the corporation must cooperate fully and provide all required documentation to avoid any additional penalties or liabilities. By fulfilling its tax obligations, the corporation can minimize potential liabilities and guarantee a successful liquidation process.

Addressing Employee Entitlements

What employee entitlements must be addressed to facilitate a seamless corporate liquidation, and what are the consequences of neglecting these obligations? When a corporation undergoes liquidation, it is vital to address employee entitlements to avoid potential disputes and legal complications.

Key among these entitlements are severance packages, which must be negotiated and implemented in accordance with relevant labor laws and collective bargaining agreements. Failure to provide adequate severance packages can lead to legal disputes, damaging the corporation's reputation and delaying the liquidation process. Employee retention is also vital, as key personnel may be required to assist with the winding-down process. Incentivizing these employees to stay on board can facilitate a smoother handover and minimize business disruption.

It is imperative to prioritize addressing employee entitlements early on in the liquidation process to avoid unnecessary complications. This includes providing clear communication, adequate support, and fair compensation to affected employees. By doing so, corporations can mitigate potential risks, maintain a positive reputation, and facilitate a seamless liquidation process.

Finalizing Corporate Wind-Down

The final stages of corporate liquidation involve a meticulous wind-down process, which requires diligent attention to detail to verify a complete and orderly cessation of business operations. During this phase, the corporation's remaining assets are distributed, and all outstanding liabilities are settled. It is vital to hold regular Board Meetings to oversee the wind-down process, facilitating that all necessary steps are taken to finalize the liquidation.

A vital aspect of finalizing corporate wind-down is Legacy Preservation. This involves maintaining accurate records of the corporation's history, including its achievements, milestones, and significant events. This legacy can be preserved through the creation of an archive or a digital repository, providing a valuable resource for future generations.

To facilitate a seamless wind-down, it is necessary to establish a clear timeline for the liquidation process. This should include specific milestones, such as the settlement of outstanding debts, the distribution of remaining assets, and the formal dissolution of the corporation. By following a structured approach, corporations can facilitate a smooth cessation, while preserving their legacy for posterity.

Frequently Asked Questions

Can a corporation be liquidated due to financial hardship alone?.

A corporation may be liquidated due to financial hardship, specifically when overwhelmed by debt burden and unable to alleviate financial struggles, rendering it insolvent, and necessitating dissolution to mitigate further losses.

Are Corporate Officers Personally Liable During Liquidation?

During corporate liquidation, officers are not personally liable unless they have provided Personal Undertakings or breached Director Liability duties, such as fraudulent or negligent conduct, exposing them to potential legal repercussions.

Can a Corporation Be Revived After Liquidation?

Following liquidation, a corporation can be revived through revival options, such as reinstatement or revival statutes, as part of post-liquidation planning, allowing the entity to regain its legal existence and operational capacity.

Who Is Responsible for Overseeing the Liquidation Process?

In corporate liquidation, a Court Appointed Trustee or Insolvency Specialist is typically responsible for overseeing the process, guaranteeing a fair and orderly distribution of assets to creditors, while maintaining accountability and transparency throughout the proceedings.

Can a Corporation Be Liquidated Without Notifying All Creditors?

In general, a corporation cannot be liquidated without notifying all creditors, as this violates creditor rights and may prompt court intervention to guarantee fair distribution of assets and protection of creditor interests.

• Search Search Please fill out this field.
• Repayment Influences
• Asset Distribution

Pro Rata Distributions

Other considerations, the bottom line.

• Corporate Finance
• Corporate Finance Basics

Which Creditors Are Paid First in a Liquidation?

When a corporation is liquidated in the U.S., its creditors are paid in a particular order , as required by Section 507 of the Bankruptcy Code. The order in which creditors are paid is very specific and was designed to protect those with a direct interest in the liquidated party's assets.

Liquidation is the process of shutting down a business and distributing its assets to claimants. Its assets include any cash it still possesses and all of its physical property and equipment, or the cash that is raised by selling those assets. Liquidation occurs when a company becomes  insolvent , meaning that it cannot pay its obligations when they come due.

Key Takeaways

• If a company goes into liquidation, all of its assets are distributed to its creditors based on a pre-determined priority order.
• Secured creditors are first in line, as their claims over assets are often secured by collateral and a contract.
• Some assets may have multiple liens placed upon them; in these cases, the first lien has priority over the second lien.
• Unsecured creditors are divided between preferred and non-preferred, as certain unclaimed creditors like employees and tax agencies are given priority.
• Shareholders are often last in line to receive proceeds with preferred stock shareholders getting better treatment than common stock shareholders.

Factors Influencing Repayment

There are several factors that determine the hierarchy of which creditors receive priority during a liquidation process. A general outline of the major criteria is below.

Secured/Unsecured Status

A secured creditor is a lender directly tied to an asset or investment that holds a lien against a debtor's property. This lien is often agreed upon at the time the debt is taken and most often held as collateral in the asset purchased or ownership of other belongings of the debtor. During bankruptcy, a secured creditors' committee will represent the lenders who have the first claim to assets and funds.

For example, upon the execution of a mortgage agreement between a borrower and a financial institution, the financial institution often gains the secured status of the property should the borrower default . As collateral for loaning out the mortgage, the bank receives potential ownership right over the property as collateral.

Alternatively, unsecured lenders have outstanding loans with the debtor. The creditor's committee represents the interests of unsecured creditors, who usually have smaller sums due to them. However, their agreements do not entitle them to liens or rights to claim the assets of the debtor. Unsecured creditors include credit card companies and some cash advance companies.

Timing of Secured Status

A lien is a legal right placed on an asset often used as collateral to secure debt. A problem may arise when a single asset is used as collateral to secure more than one line of credit. This means more than one lender may own a legal, secured claim against a single asset.

To navigate this conflict, collateral pledged to secure financing is noted as either a first lien or a second lien . A first lien has the priority claim on the collateral, while the second lien has a lower priority. The broadest rule for the position of liens is the first to secure receives priority. Though not always the case, whichever creditor secured the initial lien is more likely to be awarded the first lien.

Preferred/Preferential Status

A preferred creditor is an individual associated with the debtor that is given some priority during bankruptcy proceedings. These creditors might not have held collateral or rights to claim assets; however, they are given preferential treatment during liquidation proceedings. Preferred creditors may be considered to be a special type of unsecured creditor. Examples of preferred creditors include:

• Company Employees: Though they may not directly own company assets, employees with unpaid wages receive preferential treatment.
• Tort Victims: Should the debtor have a pending lawsuit against them, the tort victim is often positioned as a preferential creditor pending the outcome of court proceedings.
• Tax Agencies: Government bodies, such as the Internal Revenue Service (IRS) , receive special treatment for their claim over unpaid taxes.
• Environmental Claims: If a business has been punished with environmental clean-up sanctions as part of its business actions, the court will prioritize allocating funds to pay for the clean-up efforts.

Section 507(a) of the U.S. Bankruptcy Code states that administrative expenses of the bankruptcy proceedings receive priority. Therefore, the costs of overseeing the bankruptcy estate, such as legal fees, professional fees, and post-petition expenses of operating the debtor's company, receive preferred status.

Debt and Equity

A company can choose to finance its operations in two ways. First, it can raise funds from investors. Second, it can preserve ownership of the company by raising debt. Debt and equity are treated differently during the liquidation process, as debtors have many different claims over the company's assets compared to shareholders.

Preferred vs. Common Equity

Different classes of shares may receive different treatment during bankruptcy proceedings. The company's articles of incorporation will identify different classes of shares (often preferred shares and common shares ) and the associated benefits of each. It is common for preferred shares of stock to receive preferential treatment over common shares of stock in regards to receiving liquidation proceeds.

How Assets Are Distributed in a Liquidation

Liquidation proceeds are distributed in a very specific process. Should the bankruptcy estate run out of funds before lower priority creditors have received funds, those creditors will simply not be made whole as part of the bankruptcy proceedings. Even the highest priority creditors may not receive their full portion should the collateral be devalued or substantially less than their debt holdings.

Below is the broad prioritization of creditors during a bankruptcy. Every entity in a higher tier of creditors must be paid in full before any money is paid to parties in the next tier.

Secured Claims (1st Lien): Secured claims often have the top priority during liquidation proceedings. This is usually due to their money being guaranteed against collateral and secured by a contract with a debtor. Secured creditors first in line regarding lien claim take highest priority.

Secured Claims (2nd Lien): An asset can theoretically have dozens of lien claims against it. After assessing the priority order, each secured claim still receives top priority to receive liquidation proceeds. Though paid before any other creditor, creditors with second or worse claims receive unfavorable treatment compared to first lien claims.

Priority Unsecured Claims . Creditors with preferential treatment must wait to be paid until after secured credit obligations have been satisfied. However, their preferential treatment puts them ahead of other unsecured claims.

General Unsecured Claims. Creditors with general unsecured claims are often the last debt holders to be satisfied.

Preferred Equity Shareholders. Shareholders are often among the last creditors to receive liquidation proceeds. Preferred stock equity holders receive preferential treatment over common equity holders.

Common Equity Shareholders. Common equity shareholders often receive the lowest level of priority.

The general rule on priorities is that the first party to secure most completely wins priority. This is relevant for parties within the same priority class, especially if they have liens against the same asset. Should multiple creditors have a claim against the same asset, the broadest rules state the creditor that received the earliest claim receives the first priority.

Should there be insufficient funds to pay all creditors of the same priority tier, liquidation proceeds are often distributed pro rata . Each creditor often receives a share of the remaining distribution. If a pro rata distribution should be required, all creditors below the tier receiving distribution will not be entitled to any proceedings (as all funds will have been distributed before reaching their priority level).

For example, imagine a company with $20 million of liquidation proceeds and the following creditor claims:

• Secured Creditors (Tier 1 and Tier 2): $10 million
• Priority Unsecured Claims: $5 million
• General Unsecured Claims: $10 million
• Shareholders (Common and Preferred): $8 million

In the course of distributing funds, both the secured creditors and priority unsecured creditors will be made whole as there are enough funds to satisfy their claims. However, there will only be $5 million of remaining proceeds ($20 million total - $10 million Secured Claims - $5 million Priority Unsecured Claims). With general unsecured creditors demanding $10 million, they will each likely receive payment on only 50% ($5 million remaining / $10 million General Unsecured Claims) of their claim value.

Because all funds have been distributed before each shareholder level and because the priority level above the shareholders was not made fully whole, common and preferred shareholders are not entitled to distribution proceeds.

The increase in business bankruptcy filings for the 12-month period ending March 31, 2024. Business filings increased from 14,467 in March 2023 to 20,316 in March 2024.

During the process of bankruptcy, a judge may determine the defaulting company would have greater value should it reorganize rather than liquidate. In a reorganization, lower-tier parties such as common shareholders may receive proceeds that they otherwise wouldn't have during a liquidation.

The absolute priority rule of the U.S. Bankruptcy Code implies that if higher tiered creditor classes are not paid in full, lower priority creditors are not entitled to receive any proceeds. This payment structure is often called a waterfall payment structure , as one level must receive enough resources for resources to then flow downwards to the next level.

There are still several complications that can make the prioritization of creditors difficult to assess. A bankruptcy court can approve a Plan of Reorganization that changes the rules of distribution. The bankruptcy court can also impair a creditor's right to enforce a claim or subordinate claims within a given creditor priority class.

What Are Priority Creditors?

Priority creditors are parties that have legal priority during the liquidation process. Due to the nature of their relationship with the insolvent party and the legal claims they have over assets, some parties are entitled to be made whole or receive proceeds before other parties. Priority creditors or claims include alimony, child support, tax obligations, or liabilities for injury or death in specific situations.

Why Are Secured Creditors Paid First?

Secured creditors are often paid first in the insolvency process as they often have a claim against specific assets of the insolvent party. The secured creditor will often either take back the property they’ve secured against or will be entitled to proceeds from the liquidation of that specific property.

Which Claims Have Lowest Priority in Payment?

In general, unsecured claims have the lowest priority. Unsecured creditors do not have a security interest in any asset of the debtor, and the unsecured creditor likely did not obtain collateral or rights to specific assets as part of the loan condition. Due to this risky nature of unsecured loans, financial institutions will often charge higher rates or refuse business terms for unsecured loans.

Are Debt Holders Paid Before Equity Holders?

Shareholders are often among the last party in terms of priority ranking in a liquidation. It is usual for creditors and debt holders to generally receive payment before shareholders during an insolvency process. Shareholders have no priority during the bankruptcy process due to having no claims against any assets of the defaulting party.

What Is the Order of Priority for Creditors in the Silicon Valley Bank Collapse?

Silicon Valley Bank was shut down by regulators on March 10, 2023. The move came after customers became concerned about the bank's financial future and pulled their money out of the institution. Their concerns were rooted in the bank's announcement that it lost nearly $2 billion in the sale of a portfolio of U.S. securities.

Despite the general rule of priority normally laid out when a company becomes insolvent, federal regulators announced that depositors would be fully protected, meaning they would be able to access all of their money as of March 13 with no loss to the taxpayer. As such, regulators said that shareholders and certain holders of unsecured debt would not be protected.

There are a lot of intricacies when navigating the priority list of creditors during a liquidation process. In general, secured creditors have the highest priority followed by priority unsecured creditors. The remaining creditors are often paid prior to equity shareholders. Within these very broad rules, there are exceptions that move creditors around, impair their claim value, and change the priority level of who gets paid first during a bankruptcy.

United States Code. “ 11 USC § 507: Priorities. ”

Investor.gov. " Bankruptcy for a Public Company ."

Legal Information Institute. " Secured Debt ."

United States Code. “ 11 USC § 1102: Creditors' and Equity Security Holders' Committees .”

Legal Information Institute. " Unsecured Debt ."

Legal Information Institute. " Lien ."

Legal Information Institute. " Senior Lien ."

Congressional Research Service. " Making It a Priority: What Happens to Employee Claims When a Business Declares Bankruptcy? "

United States Code. “ 11 USC § 505: Determination of Tax Liability .”

Environmental Protection Agency. " Recovering Costs From Parties in Bankruptcy ."

PwC. “ Financial Statement Presentation Guide: 5.6 Preferred Stock .”

U.S. Securities and Exchange Commission. " Bankruptcy: What Happens When Public Companies Go Bankrupt? "

United States Courts. “ Chapter 11 - Bankruptcy Basics .”

United States Code. “ 11 USC § 726: Distribution of Property of the Estate .”

United States Courts. “ Bankruptcies Rise 16 Percent Over Previous Year .”

United States Courts. " Bankruptcy Basics ."

United States Code. “ 11 USC § 1129: Confirmation of Plan .”

Thomson Reuters Practical Law. " Absolute Priority Rule ."

United States Courts. “ Bankruptcy Basics .” Pages 6, 9.

Thomson Reuters Practical Law. “ Priority .”

Board of Governors of the Federal Reserve System. “ Material Loss Review of Silicon Valley Bank .” Pages 9-10.

U.S. Department of the Treasury. " Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC ."

• Terms of Service
• Editorial Policy
• Privacy Policy

EV maker Fisker to be liquidated under plan to keep owners on the road

• Copy Link URL Copied!

Troubled electric vehicle maker Fisker Inc. has reached a settlement with creditors that will allow it to liquidate its assets while working with owners to keep their pricey SUVs on the road.

The company filed for Chapter 11 bankruptcy protection in June after failing to reach a strategic agreement with another automaker that could provide it with more capital and domestic manufacturing capacity.

Fisker had big dreams to compete with Tesla. What went wrong with this Manhattan Beach company?

Manhattan Beach EV maker Fisker Inc. said it was halting production of its snazzy Ocean SUV, seeking financing and a strategic partner in a further setback for car designer Henrik Fisker.

March 28, 2024

The global agreement reached Friday in U.S. Bankruptcy Court in Delaware allows Fisker management to remain in charge for some time as the operation winds down.

That was important to Fisker, the National Highway Traffic Safety Administration and car owners, who filed objections to converting the bankruptcy to Chapter 7, noting the startup’s only vehicle — a premium SUV called the Ocean — has several open recalls for faulty door handles, loss of power and other problems.

“The owners strongly believe that Fisker owes them a responsibility to ensure that their vehicles are safe and operable, and that the best way for Fisker to fulfill that promise is through a Chapter 11 process,” said attorney Daniel Shamah, who represents the Fisker Owners Assn. “We can be sure that employees and the advisors who are helping the company do this remain on board.”

The liquidation plan, which details how proceeds from asset sales will be distributed among various creditors, is subject to a vote by all unsecured creditors.

The plan also calls for the owners association to have a voice in the sale of Fisker’s intellectual property, which includes the designs and computer code that were necessary to build and operate the vehicles. The owners need long-term access to Fisker’s “cloud software,” which is crucial for sending over-the-air updates to the vehicle software that controls the Ocean.

Other issues, including access to parts and long-term service, are still being negotiated outside the bankruptcy process, Shamah said.

However, with secured and unsecured claims against the company likely to top $1 billion, shareholders who invested in Fisker are unlikely to get their money back.

“It’s a virtual certainty that there will be no money for equity. There’s no way you’re going to have enough to pay claims in full in this liquidation,” said David Golubchik, a veteran bankruptcy attorney at Levene, Neale, Bender, Yoo & Golubchik in Los Angeles.

Founded in 2016 by auto designer Henrik Fisker, the company went public in 2020 via a SPAC, or special purpose acquisition company, backed by private equity firm Apollo Global Management. The company raised $1 billion in equity capital and borrowed even more, but ran out of money and only sold about 7,000 of its vehicles.

The Ocean was envisioned as a competitor to Tesla’s Model Y, but Fisker had trouble making and delivering the snazzy SUV through a direct sales model borrowed from Tesla. The SUV also was plagued by software glitches, though its ride and build were praised.

Fisker made more than 11,000 Oceans before it stopped production, according to a court filing. The bankruptcy court already has approved the sale of the company’s remaining inventory of 3,321 Oceans, which were acquired for $46.25 million by American Lease , a Bronx, N.Y., business that leases Uber and Lyft cars.

Fisker, which was based in Manhattan Beach before shutting down its headquarters and moving to Orange County, has few other hard assets.

Henrik Fisker, the chairman and chief executive, built the company to be asset light, with vehicles assembled at an Austrian factory owned by a subsidiary of Magna International, a Canadian manufacturer of automobile components.

Fisker’s most valuable asset might be its intellectual property, but it’s unclear what bids it may attract.

The settlement came after discussions among Fisker and its secured and unsecured creditors following a dispute over whether to convert the case to a Chapter 7 liquidation run by a trustee.

The conversion was sought by the company’s largest secured creditor: CVI Investments and its investment manager, Heights Capital Management Inc., both affiliates of Susquehanna International Group, a large Pennsylvania trading firm founded by billionaire Jeff Yass.

CVI argued the administrative costs of operating under Chapter 11 were draining and that were was little likelihood the company would remain in business.

However, its status as a legitimate secured creditor was questioned by the Committee of Unsecured Creditors, including U.S. Bank, which has filed a $681-million claim related to Fisker notes it holds.

Last year, Fisker sold convertible notes to CVI, receiving gross proceeds of $450 million, according to a court filing by the unsecured creditors. Fisker filed its third-quarter earnings report late, technically defaulting on the notes and converting them into secured debt.

The committee alleged that CVI profited an estimated $57 million from the sales of its converted shares, diluting the stock and driving its price under 10 cents a share this year.

Shareholders, in letters to the court, have called for the Securities and Exchange Commission to look into CVI’s and Height’s roles in the bankruptcy, including potential short selling that may have driven Fisker’s shares to pennies. Attorneys for CVI and Heights did not return messages seeking comment.

Fisker has received a subpoena from the SEC, The Times reported last week. It is unclear what information the agency is seeking.

The company is facing multiple shareholder lawsuits that focus on Fisker’s late third-quarter filing and the role it played in the collapse of the stock price. In 2021, the company’s market cap approached $8 billion before shares traded at pennies prior to the bankruptcy filing.

The lawsuits included allegations that Fisker, his wife Geeta Gupta-Fisker (the company’s co-founder, chief financial officer and chief operating officer) violated their fiduciary duties and securities laws. The company declined to comment.

Fisker’s stake in the company is now virtually worthless, but he sold about $20 million worth of shares in 2021 well before the stock declined. Fisker and his wife also received bonuses in December of a little more than $1 million each, which were disclosed last week in a bankruptcy court filing by Fisker. The company declined to comment on the reason for the bonuses.

Evan Scott, 39, who owns a Fisker Ocean and figures he lost about $50,000 on the company’s stock, said he was shocked to learn about the bonuses.

“As a shareholder and a car owner who had supported Henrik and his wife, I am seeing red,” Scott said. “They knew the company was in dire straits. They were just expediting bankruptcy by doing that.”

More to Read

SEC has issued a subpoena to bankrupt carmaker Fisker, indicating possible probe

Aug. 16, 2024

Ford, Mazda warn owners to stop driving older vehicles with dangerous Takata air bag inflators

Aug. 13, 2024

Refueling a hydrogen car in California is so annoying that drivers are suing Toyota

Inside the business of entertainment

The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.

You may occasionally receive promotional content from the Los Angeles Times.

Laurence Darmiento covers finance, insurance, aerospace and dealmakers in Southern California for the Los Angeles Times. He joined the paper in 2015 as an assistant business editor and has overseen finance, real estate and Washington business coverage. Previously he had been the managing editor of the Los Angeles Business Journal and was a reporter for the Los Angeles Daily News and other outlets. A New York native, he is an alumnus of Cornell University.

More From the Los Angeles Times

Column: The weight-loss drug revolution exposes the weakest links in our healthcare system — drug pricing and insurance

Aug. 27, 2024

Got your ticket for bobblehead night? Check. Get the bobblehead? Not so fast

‘This used to be a very magical place’: Disney fans with disabilities decry accessibility pass changes

SpaceX marks milestone with billionaire’s space walk, first by private citizen. What to know

Cookies on GOV.UK

We use some essential cookies to make this website work.

We’d like to set additional cookies to understand how you use GOV.UK, remember your settings and improve government services.

We also use cookies set by other sites to help us deliver content from their services.

You have accepted additional cookies. You can change your cookie settings at any time.

You have rejected additional cookies. You can change your cookie settings at any time.

Miss L Moyses v Talenthouse (in Liquidation): 3304180/2023

Employment Tribunal decision.

Read the full decision in Miss L Moyses v Talenthouse (in Liquidation): 3304180/2023 - Strike Out .

Updates to this page

Is this page useful.

• Yes this page is useful
• No this page is not useful

Help us improve GOV.UK

Don’t include personal or financial information like your National Insurance number or credit card details.

To help us improve GOV.UK, we’d like to know more about your visit today. Please fill in this survey (opens in a new tab) .

I moved with my kids to a hotel room. It's cheaper than renting an apartment and has many amenities.

• I was on a month-to-month lease at our previous place when the owner gave me 30 days' notice.
• I looked for other places to rent, but the rent was beyond what I could pay.
• I found a hotel room for $2,200 a month, which is cheaper than other places and has amenities.

"I am not sure what I am asking for exactly, but I need some sense of ease." I prayed the words as I walked into my bedroom and confronted the piles of clothes on the floor.

It wasn't just the clothes that had me feeling overwhelmed — it was everything. The bills, the upkeep of the house I had been living in for six years, the laundry, and the load of doing it all as a single mom of three. My plate was full, and I was so damn close to giving up —whatever that meant.

I loved my house. It had a charm of its own and was within walking distance to both my ex's house and the kids' schools, and my landlord never increased the rent.

I was, however, on a month-to-month lease , and with that came a sense of unease. In other ways, too, the house contributed to my sense of unease. The yard required an infinite amount of work, the oil tank and furnace were constantly malfunctioning, and don't even get me started on the mice issue.

I was drowning and needed to find a way out, though I didn't know what that was, so I prayed.

The house was put up for sale, and we had to move

Imagine my surprise when I read the email from my landlord that said, "We are putting the house up for sale and need you out by March 1." That was only 30 days away. Where would we go? How would I afford it? I didn't have savings to rely on ; hell, I didn't even have a credit card.

Related stories

I had prayed for a solution, for a sense of ease. This couldn't be my answer. This was more stress.

So, I hit Zillow. Two bedrooms, 1,000 square feet, $2,700 a month. Three bedrooms, 1,200 square feet, $3,000 a month. The prices were outrageous and well beyond my budget. When I finally found a place that left me feeling positive, my application was denied because my credit was subpar.

I was defeated. My plate was not just full. It was breaking and leaving a mess all around me. My mom generously offered that we could stay with her until I found something. I was grateful, but at 46 years old I was desperate for a solution that would honor my need for independence, privacy, and affordability. It was time to get creative.

I found a hotel room that rents for long-term stays

I frantically searched Airbnb and Vrbo, but the few long-term options were already booked. As a last-ditch effort, I reached out to local hotels and inquired about rates for long-term stays. That's when I received surprise email No. 2. Only this one was from Avon Old Farms Hotel , and, with it, I felt as if I had won the lottery.

"We have a two-bedroom apartment on-site that we rent out for longer stays. It's $2200 a month and includes all utilities and hotel amenities," the email said.

Sure, this was only a temporary solution — the apartment was on the small side, and the location was not perfect. But it was a place my kids and I could call our own, even if only for a few months.

After taking a look at the apartment, I signed on the dotted line. Quickly after moving in, I was told the cleaning team would be coming every Tuesday to do a deep clean, change the bedding, and swap out our used towels with clean ones. The gift of having towels laundered and stocked on top of the weekly cleaning was going to be the greatest gift in the world for me.

I still had to tell my kids, though, whom I assumed would be less than thrilled with a small temporary arrangement further from their father. But they found the adventure in our setup right away as they explored the beautiful hotel grounds. Their eyes lit up when I showed them the pool, the game room, the sauna, and the gym. They quickly discovered that the hotel restaurant hosted trivia every Thursday night, and it has since become our favorite weekly activity. We swim on hot days, cook s'mores at the firepits on the weekends, and enjoy continental breakfast in the mornings.

This is not an apartment I would've ever looked for, and I would not have known to look at a hotel for my housing needs. On paper, it is not a great fit for me and my kids. But the amenities are the answer to my prayers. They have offered me the gift of ease, and that, after all, is exactly what I prayed for.

Watch: Was Italy's $1 home scheme worth it?

• Main content

We've detected unusual activity from your computer network

To continue, please click the box below to let us know you're not a robot.

Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy .

For inquiries related to this message please contact our support team and provide the reference ID below.