When a company goes into liquidation, it means that the company is being brought to an end and its assets are sold to pay back various claimants, such as creditors and shareholders. The liquidation process happens when a company is insolvent, meaning it can no longer meet its financial obligations. Here are some key things that happen during the liquidation process:
- The company ceases operations and is deregistered.
- A liquidator is appointed to investigate the companys financial affairs, establish the cause of its failure, and investigate possible offenses by the company or its directors.
- The remaining assets are used to pay creditors and shareholders, based on the priority of their claims.
- The liquidation process is complex and can take several years.
- At the end of the liquidation process, the company is formally dissolved and ceases to exist as a legal entity.
If a company is in deep financial trouble and is liquidating, its shareholders are almost certainly out of luck. However, if the company is trying to stave off liquidation, it may possibly make a comeback and, if it does, its stock value could come back with it. If a company files for Chapter 7 bankruptcy, it immediately stops all business operations while a trustee is appointed to liquidate its assets, meaning sell off all of its remaining stock and other possessions for cash. The proceeds will be used to pay off its creditors and investors. Employees will be made redundant during the liquidation process, and the liquidator is responsible for ensuring that employees are treated fairly and are informed about their entitlements to receive redundancy payments.
