What are the different types of company liquidation and what do they look like in action?
What is company liquidation?
Liquidation, also known as “net asset liquidation”, is when a company's assets are liquidated (sold) and the company ceases to exist.
Liquidation process
The exact liquidation process will depend on the type of company liquidation you’re doing. At a very basic level, it will involve company assets being sold but it may or may not involve the courts.
4 types of liquidation of a company
1. Partial liquidation
A partial liquidation is when a company sells only some, not all, of its assets and remains operational in some capacity.
2. Complete liquidation
A complete liquidation is as the name suggests: all company assets are sold and the business is “wound up” or dissolved and deregistered.
3. Voluntary liquidation
A voluntary liquidation is instigated by the business itself. It can be complete or partial. A company might opt for voluntary liquidation if the business is in some level of financial difficulty and needs to raise funds by selling off assets to pay bills, or is looking to optimize business performance via some sort of restructure.
4. Compulsory liquidation
A compulsory liquidation occurs usually with the assistance of the courts and is instigated either by the company’s creditors or by the government. It can also be complete or partial.
Induced by creditors
If an insolvent business is unable to pay its debts and is either unable or unwilling to renegotiate payment terms with creditors, the company can be forced into the liquidation process by eligible creditors.
Induced by government
When liquidation is induced by the government, it’s because the company is conducting business practices that are somehow in contravention of governmental rules and regulations.
