Understanding why Liquidations are more helpful than one may believe

There is a fairly widespread tendency for people to view liquidations as marking the end of a venture and a sign that a man or woman has tried hard to make a success of a business but, in the end, has had to accept failure. In practice, however, although trying and failing may provide a somewhat simplified summary of events, the decision to recognise the situation and to seek a legal solution, provides the means to survive and to learn from the experience. The process, in fact, has the potential to transform what might, to some, appear to be an end, into a much-needed opportunity for a new beginning.

Of course, businesses often experience cash flow difficulties, perhaps following some unplanned capital expenditure. However, if they are in good standing with their bank and their suppliers, a short-term increase of their overdraft facilities or a temporary extension of their 30-day payment agreements to 60 days will normally be enough to get them through a tougher-than-usual month or two. In such circumstances, resorting to liquidations is clearly unnecessary. However, there is a point beyond which a business owner may be forced to accept that this is the only feasible course of action.

When a company’s combined liquid assets are insufficient to meet its outstanding debts, it is said to be in a state of technical bankruptcy. What this means is that its creditors are at liberty to seek settlement through the courts. Should they choose to do so, their actions could formalise the defaulting company’s bankrupt status. The outcome could lead to the closure of the business, the confiscation of fixed and moveable assets, job losses for its employees, and the risk of further legal action against its owner or directors. By contrast, where businesses instead choose to apply for declare voluntary bankruptcy, the subsequent liquidations will result in a very different scenario. Despite the downside, this is actually an option that brings with it a number of benefits.

Among the most obvious advantages of adopting this strategy providing, of course, that there is no evidence of fraudulent intent, is that any unsecured debt is written off. This carries the immediate benefit of positioning the owner to start over without the need to to bear the burden of these old obligations. Also, because the process is undertaken as a voluntary act, any current or pending legal action against the company will be halted.

One further provision of company liquidations that can be especially important for the peace of mind of a company’s directors is that, once again, if they are absolved of any irregularities, the process will have no bearing on their lives and they are free to pursue their future lives however they may choose.

Apart from the fact that they will have lost a business, the only real disadvantage to an owner is the need to either start a new company or to seek formal employment in another. That said, this is not a situation that should be treated lightly. One cannot continue to keep making the same mistakes, as there is a limit to the number of times the courts will feel obliged to extend such leniency.

While it is perfectly possible to obtain the appropriate forms and to proceed with your application unassisted, there are many essential formalities to be completed. As these are often complex as well as time-consuming, and each case is unique to some degree, it is a far better idea to seek help from someone with sound knowledge and experience of liquidations.

Based in Centurion, Insolvency Care is a firm of insolvency practitioners backed by a panel of attorneys, all experts in this field as well as personal sequestrations and rehabilitation. The firm’s goal is to alleviate stress by facilitating equable solutions to leave its clients debt-free.