Liquidation is the process in accounting by which a company is brought to an end in many other countries. The assets and property of the company are redistributed according to certain rules and governance.
If a business stakeholders have to be dissolved due to any reason, a formal decision must be taken to proceed to dissolve the company. This process is called Company Liquidation and is done by professionals to ensure its legality and compliance.
After the management of the company have agreed with the Liquidation company to start the liquidation process, they lose their management rights until the process is over. The Liquidation company takes over the company management, financials and asserts until it the company is dissolved.
What does a Liquidation Company do?
The Liquidation company is responsible for all financial issues of the company being dissolved. The Liquidators will collect all debts to ensure enough liquidity. They will also pay all creditors and ensure closure of all pending financial transactions. They will assure the company financial positions are closed with clear balance sheets at the end of the finance year. The terminal financial balance sheet will be ready for auditors and all stakeholders for revision and compliance.
The balance sheet and company documents will also include all company current and fixed assets with depreciation. If any assets need to be sold or auctioned, the liquidators will process and add the values to the company total value for solvency.
What are the Types of Company Liquidation?
There are many types of Liquidation performed by professional liquidators. The most common is Voluntary Liquidation. This happens when the business decides to cease operations, perhaps due to partners dispute. They appoint a liquidation company to assess the financial positions and distribute the capital and assets among stakeholders.
Another type is Strike-off, which means that the company still operates but decides to be taken off the trade register. The process itself is reversible if the company decides to restructure and re-register again. The process ofcourse is regulated according to each country regulations, as in the liquidation of Cyprus companies is regulated under Section 237 of the Companies Law Cap. 113.
The last type of liquidation is the Compulsory liquidation which usually occurs under a court order due to a variety of reasons. The most common reason is due to failure to pay its debts but maybe due to other compliance issues.
Why would a Company be Liquidated?
There are many reasons why a company undergo liquidation and a variety of stakeholders involved. The government may order a liquidation due to registry issues. A court may proceed to liquidate the business due to a legal issue. A holding company, bank or financial institution overseeing the business may decide it deserves to cease operations. The board of directors or management may want to choose a type of liquidation for taxing purposes. The partners in a business in dispute decide to split ways and split the assets and capital between them.
The duties of a Liquidation Company
As soon as the business liquidation process begins, the Liquidators are responsible financially and legally about the process until the end. The liquidators are managing the business in all aspects and the acting board of directors and managers are supervised by the liquidators or even marginalized.
A business may stop operating for a variety of reasons. If you find your company required to go through company closure, and unsure what to do or how to handle the issues, then consider to hire a professional Liquidation company to proceed.