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What Does the Word Liquidation Mean?

August 06, 2019

When we hear the word liquidation we understand that it means a company is going out of business. But what does that process entail exactly? Is the liquidation of a company a bad thing? Today we delve into what it means for a business to liquidate, and why it might not necessarily be a negative outcome.


What does the word liquidation mean?


The liquidation of a company describes the process in which a company’s business, assets, and liabilities are terminated, realized, and re-distributed. Liquidation is also referred to as “winding up” or “dissolution” (the last stage of the liquidation process).



Why do companies liquidate?


Companies liquidate for a myriad of reasons, however the most common being that for whatever reason the company is unable to pay off its accumulated debt to creditors. To make amends, a palpable solution is to then turn your assets into cash to pay off your debts.


Is liquidation a bad thing?


There tends to be a negative connotation to the word liquidation, which gives the impression that liquidation is a bad thing. However, in certain ways this is not necessarily the case.


The Pros of Liquidation

  • Company debt is written off
  • There are no associated restructuring costs

The Cons of Liquidation

  • You are responsible for paying personal guarantees (the company’s legal promise to pay off credit)
  • A thorough investigation will occur
  • You are unable to retain your business’s assets


Are there different types of liquidation?


There are three main categories when it comes to the liquidation of a company: Creditors’ Voluntary Liquidation (CVC), Members’ Voluntary Liquidation (MVL), and Compulsory Liquidation (CL).


Creditors’ Voluntary Liquidation (CVC)

This is the most common category of liquidation, and is used to describe the insolvency process in which companies are unable to pay off its debts.

Members’ Voluntary Liquidation (MVL)

Unlike CVC liquidations, in MVL liquidations the company is able to pay off its debts in full, with interest. This type of liquidation typically occurs when company shareholders choose to retire, or realise their assets, or if the company has surplus assets to basic requirements.

Compulsory Liquidation (CL)

A court-order might end up having a company that is unable to pay off its’ debts, go into liquidation in order to pay off creditors.


Where can I find a reputable liquidator?


Are you faced with the difficult decision to begin the process of liquidating your company, but are unsure as to where to begin?

Whether you need to minimize inventory, conduct a liquidation sale, or monetize your assets, Infinity Asset Solutions is here to help! We are fully capable of ensuring you reclaim the right value for your business assets. We offer years of experience helping businesses in a range of industries effectively liquidate their businesses without hassle or need for additional stress. Call us today to learn how we can help you!


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