Liquidation of a company refers to the winding up of that company. It is a legal term which signifies that the functioning of the company will stop and the assets of the company will be disposed off or distributed to pay for the liabilities and the remaining, if any is to be distributed among the stakeholders.
What happens on Liquidation?
On liquidation, the assets are sold off to pay the creditors, second in line are the preferred share holders and finally with the least right are the common share holders.
Liquidation may be voluntary or compulsory. For the latter, a petition needs to be filed in the court, who orders the company to wind up. The creditors of the company file the petition, so that the company is forced to wind up and they can recover their dues by disposing off the assets owned by that company.
Role of Liquidator
A court often appoints a liquidator who is the person responsible for amassing all the assets of the company, dispose them and settle the dues of the company in the order it has to be done and then go for dissolution of the company. There are professional bodies who act as liquidators in exchange of a fee. They ensure that the company that would be liquidated get good price for their assets and don’t lose by way of distress selling.
