Creditor Goes Out Of Business
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What is Creditors’ Voluntary Liquidation?
A creditor’s voluntary liquidation is extremely similar to personal bankruptcy, but it deals exclusively with insolvent businesses. When a business is no longer viable, or can no longer hold its current market share, it is fairly common that a company’s directors will decide that they will cease the business and liquidate the company’s assets. This is usually done in order to pay off the company’s outstanding debts and to ensure that none of the directors or shareholders are personally liable for the company’s debts.
A creditor’s voluntary liquidation is referred to as such because they liquidate the company’s assets voluntarily, unlike a forced or compulsory liquidation. One of the main reasons that companies initiate a creditor’s voluntary liquidation is in because of the charge of wrongful trading. Wrongful trading is when the directors of the company realize that their business is insolvent, but continue to do business anyway, deceiving all of their shareholders.
The voluntary liquidation process is not an extremely complicated one. The first step is for the directors of the company to call a meeting to order, in which they will report to the company shareholders that the business is insolvent. They then state that it would be fiscally irresponsible for them to accept any further credit from any of their creditors, because it is inconceivable for them to be able to repay the current debt. Then there is a general vote, in which a resolution is passed in order to cease trading (or stop doing business) and they seek to operate a liquidator. A liquidator is an individual that goes about the business of tying up all the loose ends of the company.
After looking over the income and assets statements of the business, the liquidator sets up a meeting with all of the company’s creditors. At this meeting the creditors discuss with the liquidator how they feel the voluntary liquidation should go. The liquidator then decides on just how the money received from the sold assets will be delegated. Usually this involves setting up an order of priority when it comes to paying off debts. After this meeting is when the actual process of voluntary liquidation begins.
The assets of the company are sold, the debts of the company are paid off to the best of the liquidator’s ability and the business ceases to exist. One of the most pivotal jobs that the elected liquidator must do is go over the company’s profit and loss statements. If there are many discrepancies or overall problems with the way the company did business, the liquidator might have to initiate measures against the officers of the company. It’s pivotal that a company keep tidy orderly records, as they play such an important role in the voluntary liquidation process.
So, if you are considering going through the voluntary liquidation process, you should seek the best legal advice you can afford. The voluntary liquidation process can seem like it’s a very complex, but it doesn’t have to be. With the right legal advice and the right knowledge of procedure, going through a creditor’s voluntary liquidation can be quick and relatively painless.
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