A voluntary liquidation is an orderly self-impose and end-of-business solution of a business which has previously been approved by the creditors. Such an act can take place when the elected board of directors of a business no longer believe that the business has a future to itself as a going concern. Such a cessation of operations is generally brought about by creditors to gain their return of investment. If a business is brought into liquidation it is the process of its being wind-up.
The winding up order will be made by a court and is designed to provide the courts with complete access to the affairs of the company to ensure that they are satisfied that the running of the business has come to an end. This process can be completed by either the voluntary liquidation process or a winding up order. These types of proceedings will have court hearings and a date for a final hearing will be set.
An order will be filed by the creditor and will state the amount of money that has been lent to the business and the interest that has been paid by the business. All debts will be paid off by the business and the value of assets will be reduced. With this set-up the business will be wound up. All staff will be laid off and the location of the business will be given back to the relevant authorities.
Voluntary liquidation usually happens to businesses that have been around for some time. However, there are also businesses that have just started their trade or have been in business for a relatively short period of time. These circumstances are known as ’emerging businesses. In such cases the liquidator must be especially careful to ensure that the voluntary liquidation process does not cause any undue stress on the businesspeople who have been working behind the scenes. It must be remembered that such a procedure would have been initiated only if it had been expected that the business would fail shortly after it went into liquidation.
There are different types of liquidators and each one deals with the situation in slightly different ways. A Compulsory liquidator is one that is appointed by the court to oversee the distribution of property. This person decides how to get the property to the creditors and deals with repossession. This type of person will not pay a dividend to the owners of the company.
A Non-compulsory liquidator is one that is neither appointed by the court nor mandated by law to deal with the situation. The process can be undertaken by an independent individual or by a body of professionals who are experts at strategic management. These individuals assess the business situation and will recommend the most viable option. There are a lot of advantages associated with voluntary liquidation. The fact that there is no court involved means that there is less conflict between the directors and creditors.
In addition to this, a company can pay off its debts through a Voluntary Liquidation instead of having to seek any form of financial assistance from any source. The only condition is that the voluntary process should be extended for a period which can vary depending on the amount of debt a company owes. The company must then present its plans to the creditors to prove its solvency before the liquidators. If these plans are approved, then the company is declared to be free from all liability.
Another advantage is that there is no need for any formal charges to be paid by the company before the process is completed. All payments are made by the directors in their own funds. However, if the liquidators find that there is a need to obtain further financing from external sources, then they will charge an additional fee. This fee is only incurred if a successful deal is not achieved with the company and it must be repaid once a successful settlement has been reached with the creditor.