The liquidation process of a company is not simple and includes a lot of steps. A company can go for two types of the liquidation process. One is voluntary liquidation, and another one is compulsory. In both, the liquidation process, the assets, and unused products of the company are sold and distributed among different parties.
However, which process will be followed in liquidation finance vary with different factors. In compulsory liquidation, the company has to sell its property and withdraw their outstanding money from the market in order to repay the creditors. However, in voluntary liquidation, the company has to do precisely the same. But the procedure is different.
A company may face finance liquidation problem while winding up. That time they have to collect money from selling their excess inventory too. For the company, creditors are not the only party who will get cash for winding up the company, but shareholders, debt holders can also file a petition to get money.
So, when a company needs to go through the compulsory liquidation process?
A company has to go for the compulsory liquidation process in the following circumstance. These are-
1) When total debts are exceeded too much than the total value of the assets.
The company should keep a balance in its debt, liability, and asset ratio. The ratio should be at an optimal level. When the debt ratio increases 2 or 3 more times than the value of the asset of a company, it has to go to the compulsory liquidation process.
2) When the company is unable to pay the debts
A company that is not able to pay debts should go for mandatory liquidation. A company must pay the debt amount in the market in any case. If the debts are becoming due for many years and the company can’t cope up with the financial condition, the debtors can file a petition for the compulsory liquidation of the company.
3) If it is failed to register as a public or private limited company
If a company was unable to register as a public or private limited company, it is given some time for converting as a registered company. If the company fails to register with all of the supporting documents and proof as a public or private limited company, it should face the consequences of compulsory liquidation.
The process of liquidating the company’s assets and goods starts while the formal liquidating process continues. In between the process, the creditors and shareholders of the company can take any action. However, the movement must be legal and void.
In comparison to the compulsory liquidation, voluntary liquidation is a less complicated process. As it is planned, the company can enjoy more benefits than the required liquidation process. If you can’t run a company for the insolvency, it is better to go for the volunteer liquidation process.