What You Should Know About Liquidations

What You Should Know About Liquidations

In the current competitive market, several factors could affect the success of your business. You might be surrounded by competitors who offer discounts and set lower prices, and in the worst case, your business might cease to be viable. The future can be uncertain, but you would be in a better position if you understood the liquidation process well in advance. The thought of liquidating your assets to repay debts can be devastating, but the only other options you will be left with are compulsory liquidation or going into debt. Here is everything you need to know about liquidations.

Types of Liquidation

There are various types of liquidation that your company can go through. The most important of them include:

1. Members Voluntary Liquidation

In this case, your company assets would be greater than the liabilities and debts. MVL or members’ voluntary liquidation is the legal process used to wind up the solvent company’s affairs. Once the shareholders agree to stop trades, they are free to liquidate all assets then split the proceeds between themselves. In such an event, a licensed insolvency practitioner can act as the liquidator. As liquidation experts from Approved-Recovery.co.uk would advise, companies need to identify an impartial party to mediate the process. The company would be deemed solvent when the assets are enough to settle all liabilities and costs, including interest. It’s also important to note that shareholders can get tax relief on capital distributions.

2. Creditors Voluntary Liquidation

Most companies are faced with the CVL type of liquidation. It happens in the event that company directors decide that they can’t run the company, and they resolve to liquidate the company assets. It would be in your best interest to appoint an impartial Liquidator who would liquidate the assets. The proceeds are used to cover creditor debts, and the remaining is distributed among shareholders.

3. Compulsory Liquidation

This type of liquidation happens when the court winds up the operations of a company. If you take too much time to pay creditors or fail to pay them all together, they are legally obligated to apply for a winding order with the court. Once the order has been made, your company would be placed under compulsory liquidation, and the court appoints a liquidator to mediate the process. In most cases, the company assets will be sold at minimum cost to recover creditors’ money.  

Assets That Will Be Sold

All the company’s property will be sold and converted into cash that’s used to compensate the creditors. Therefore, have a list of all the furniture and company equipment before considering consulting a liquidator or a lawyer. Request the liquidator to create warranties for all equipment so that you appear more professional when handling the transactions.

Tasks of the Liquidator

Once you are done preparing a list of company assets and identifying an attorney or liquidator to mediate the liquidation process, you can request the attorney to recommend the right appraiser. In most cases, the cost of company assets will be 15% lower than the retail price. The situation is unique; therefore, you should be prepared for this.

If shareholders decide to provide the products, you should consider doing an out of sale business deal. In this situation, you should consider offering deals and lowering prices, such as offering additional products when one buys a certain asset. Agree on a week with the liquidator where you can auction most of the company assets. A liquidator might also propose the sale of assets via the internet, which is popular among most people.

liquidations - task of liquidator

Also, to sell items quickly, it would be in your best interest to consider negotiated sales or public auctions. In negotiated sales, only a few people are involved in the auctioning process, and it’s more discreet in comparison with public auctions. However, if you are in a rush to liquidate assets and repay debts, you should consider consignment sales.

Consignment sales refer to offering your company assets to a third party that’s willing to sell them on your behalf. You won’t be selling the assets, but instead, the third party sells your goods on your behalf. Consignment sales are based on a commission, but it’s a faster way of liquidating company assets.

Liquidating company assets can be a long and tedious process; therefore, if you have concerns about company finances or have doubts about the process, you should consider speaking to a professional liquidator. When liquidating, you should aim at getting the most significant profit; therefore, explore all options before settling for one.