4 Advantages of Business Liquidation

When a company becomes insolvent, it’s not uncommon to opt for business liquidation. While the nature of liquidation can be voluntary or compulsory, there is often a negative connotation associated with the term. Even though it is a stressful time for the company’s directors as well as employees, there are some unforeseen benefits to liquidation. Creditor’s voluntary liquidation, in particular, has multiple advantages, making it the best-case scenario under the circumstances. 

 

Here are four benefits of business liquidation

Better Understanding of the Timeline

Before a liquidation commences, it needs to be confirmed in a resolution by the directors as well as the shareholders. Moreover, during voluntary liquidation, the interests of the directors of the company and the creditors align, hence, the proceedings are smoother. Consequently, the upper management will have more control over the timing of the entire liquidation process. Hence, there might be enough time to notify employees and to get all affairs in order. 

Clear Expectations

A creditor’s voluntary liquidation also has a pre-defined process in most situations. This means that the directors are well aware of the different steps, helping them to follow the process with ease. Alternatively, during compulsory liquidation, the process becomes a lot more chaotic and complex, as courts might get involved.

Liquidators Handle Creditors

The main purpose of a liquidation is to pay off the debts of the creditors by any means necessary, including selling off assets. This task is fundamentally performed by a liquidator, an external party that is hired to oversee the proceedings. Once the liquidator is appointed, then they are responsible for handling the creditors, who can be quite a handful in some cases. Fortunately, the upper management doesn’t need to tackle them in case of voluntary liquidation, as they are absolved of their duties. 

Prevent Legal Action

As mentioned above, creditors can be quite difficult to handle during a liquidation, with many opting for legal action to get their dues. However, when an insolvent company dissolves voluntarily, then the creditors can no longer pursue legal action. Thus, the directors have to deal with financial losses at worst, unlike compulsory liquidation, where legal proceedings can also severely damage their reputations and careers.

 

Thus, the process, albeit stressful, also has a few advantages for the management. 

 

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