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Liquidation is a legal process through which, a company or a business is brought to an end. When a business is liquated, its assets are sold off, and the proceeds are used to pay its creditors. It is also known as winding up or dissolution of business.

The businesses or companies that do not have enough resources to pay off their debts avails the facility of liquidation. All the assets of the company are taken over by its creditors; they use these assets to cover their advances to the company by selling them, and converting them into cash. Creditors are the first in line to be paid in the case of liquidation. After the creditors, the preferred shareholders fall in the priority list followed by the common shareholders.

Liquidation can be of two kinds; it can be either compulsory or voluntary. Compulsory liquidation occurs when the court orders a business to liquidate its assets and pay off its creditors. The company itself, the creditors, or the contributories can put a petition forward in court. Usually, the reasons behind this are that the company is unable to pay its debts, or it is equitable to wind up the company. The shareholders of the company, who decide to wind up the company, and dissolve it, support voluntary liquidation.

Liquidation does not happen right away, it goes through several stages. The first of these stages is the detailed accounting of the inventory of all the assets of the company; the whole inventory is divided into different categories, and is carefully listed down. To liquidate the inventory, it is put up for auction, and the highest bidder takes the possession. It is quite easy to convert liquid assets into cash than the non-liquid ones. One such example is of the plant and machinery, as it depreciates over the time, or the model gets outdated, it becomes difficult to even its cost price, mostly they are disposed off at a loss. An agent can be hired to dispose off the real estate, or foreclosure can be done for selling it.

A person known as the insolvency practitioner performs the whole process of liquidation by dealing with the creditors and taking care of all the legal requirements of the process. Liquidations normally cost a lot, because they are not free. For example, approximately 7,000 pounds are to be paid to the insolvency practitioner alone for his services in winding up a small business entity.

Liquidation is a great decision to make, so before jumping to this decision take into account all other methods available for bailing you out of the situation. Some of the businesses decide to go for de registering them instead of liquidating their business. For this purpose, all you need to do is ask the registrar to remove your name from the register of companies.

Once your financial position recovers, you can again register yourself. An option for the businesses in UK is Phoenix, which enable them to start their business again. Phoenix work in a way that it liquidates the company first and after that it enables the businesses to start again with a new name. The benefit of this process is that it allows you to retain your customers, and suppliers. As there is nothing that can be done after the company is liquidated, therefore it is necessary to take this decision after careful consideration. If you have any plans of continuing the business once your financial position recovers, and you are back on the track, then you should better go for de registration. However, if you do not see any way of improvement and the business is only incurring losses, then it is better to liquidate the business concern.

Bobby Dazzler is a legal consultant. You can take his advice on company liquidation and protect yourself from your creditors. For more information visit his recommended website at http://www.beesley.co.uk.

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