Times have been rocky, and it takes a lot for a business, regardless of its scale, to succeed. Traditional retail storefronts are doing terribly given the rise of online consumerism, and there are many factors working against most companies given the realities of a once-in-a-century global pandemic, the consequent recession, and so on. In cases like this, companies often find themselves in a serious dilemma regarding liquidation, and whether they should pursue it.
With that in mind, here are a few key goalposts to keep in mind that will help guide you to a satisfactory decision.
One deciding factor in deciding whether to liquidate your company is the state of its assets. Does the company have any assets left to pay its shareholders, or has it reached the point that the stock has become incredibly worthless? If the company has clearly gone out of business, then a trustee is typically appointed to help square away its affairs and sell off the remaining assets, if any exist.
In Australia, as in most countries, any liquidity resulting from the selling of assets is used to pay administrative expenses first and foremost. If there are remaining claims by creditors, then these may need to be paid off as well. If, after this entire process is done there are remaining assets involved, then they can be given to prominent stakeholders in the company. This is the general process, but in all cases, you will need to have a clear understanding of what your assets look like and whether it is time to call quits.
The process of liquidation is painful and so upsetting that many business owners would prefer to stave it off for as long as possible. If you’re still in the throes of wondering, asking yourself “is liquidating my company a good idea?”, then you have some interesting options to consider.
For one, perhaps your company would benefit from restructuring. You would need to consult with a professional to determine whether this is a viable solution, but it is one that many businesses implement if it seems to offer suitable solutions to the problems plaguing them. Voluntary Administration is one popular way of restructuring and is often employed in Australia. This means that directors can appoint an administrator who will help them oversee key operations for a month till a deal is worked out with creditors. This offers a bit of a grace period till matters can be sorted out.
Be Aware of the Cons
Liquidation often marks the point of no return for most companies, so it’s important to make sure that you have exhausted all your options, and have made peace with this reality. Liquidation is the death knell of the company, and it will never be in business again. Also, all the assets are surrendered, and an investigation into the cause of debt and whether or not anyone is at fault will accompany all the proceedings. Therefore, it’s not a conclusion that anyone comes to easily.
Some companies have managed the enviable comeback after liquidation, but they represent rare, anomalous cases. While the process is undoubtedly stressful and something to be avoided at all costs, you will probably need to go through with it if all backup solutions have failed. In any case, contacting professionals for advice is a good way to go, and they should be consulted as soon as possible.
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