The liquidation of a company is the legal winding up of a company that includes the sale of company assets to facilitate the payment of remaining debts to the company’s creditors and the dispersal of any remaining assets to the company’s shareholders. While there are a variety of reasons of why a company may go through liquidation, the action of liquidating a company is used whenever a company is wound up except when it is the result of an amalgamation or merger.
The most common reason a company is liquidated is because it has become, or is very close to becoming, insolvent. Essentially, insolvency is the state a company ends up in when it is unable to cover its debts and pay back its creditors. Insolvency can result from a variety of factors and does not necessarily lead to a company going through liquidation. Depending on the circumstances of the insolvency, there are some steps a company can take to stay in business and remain a legal entity. One such step is called a company voluntary arrangement, or CVA. A CVA is an agreement made between an insolvent company and its creditors that allows the company to remain in business and pay off their debts in a way that will not hinder their operations. A CVA is almost exclusively reserved for companies that have become insolvent as a result of a one-time problem. Even then, the creditors of a company that has not already recovered from their financial issues will rarely agree to a CVA.
If your business is considering liquidation or is at risk of a court ordered liquidation, there are a variety of steps you can take to ensure that things go smoothly. The best result to work towards in a liquidation is to have your creditors paid off in full and to have your shareholders take home a sizeable portion of their investment in the company. Depending on how the liquidation of assets is managed, there can be a sizeable difference in the ready cash available for dispersal to applicable parties. Here are some steps that can be taken to try to maximize on the value of your company’s assets.
1. Hire a professional liquidator
Assuming that your company’s assets are large enough to be worth the fees of a liquidation expert, having an expert on hand to sell of company assets will make a tremendous difference in the funds available for dispersal. Bear in mind that a professional liquidator is not only trained in the sale of assets but also has considerably experience in the field. It’s important to take your time in selecting a liquidator. Experience is critical but does not necessarily mean that the liquidator is good at what he or she does or is even right for your company. Look for experience and results. The best course of action would be to research the liquidators available in your area and to make a short list of the ones who seem the best suited to the liquidation of your company. Once you’ve assembled an effective short list, take the time to call and interview the different liquidators to find the one that seems like the right fit for your company. For example, a liquidator who specializes in the liquidation of companies similar to yours would probably be suited better to one that has no specialty. The bottom line is that the right liquidator will be able to milk your assets for more money.
2. Calculate the liquidation value
It’s important to have a good idea of what the assets of your company are worth before liquidation. Bear in mind that during a forced liquidation, it is standard to expect around a 20 percent decrease in the retail value of assets. Make a list of all of your company’s assets and calculate the value of everything combined. The liquidator will do this as well but, whether you choose to hire one or not, it’s important to have a hand in and be aware of what you should be getting.
3. Choose the best time for sale
This is surprisingly overlooked by many companies going through the liquidation process. The fact is, liquidation can be stressful and companies will try to get through it as quickly as possible. This is just not a smart idea. Make sure to sell assets at the best times in order to get the maximum return.