Debitoor Dictionary

Accounting terms explained in a simple way

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Liquidation - What is Liquidation?

Definition: Liquidation is the winding up of a company, selling off the assets to distribute them depending on whether the business is solvent or insolvent.

If you have reached a stage in your business where you no longer want to continue, you may consider liquidating your company; which basically means turning your assets into cash.

Insolvency

You may be forced to consider liquidation because your company is no longer solvent. If the company remains solvent it can still be controlled by the directors of the company but when it is insolvent, you can place the company in control of a liquidator who will then deal with the aspects of the liquidation or winding up of the company.

If the company is deemed insolvent any remaining assets will be sold in order to pay off any remaining creditors.

Liquidator's role

The liquidator's main responsibilities are to take stock of the company’s assets and pay, if funds are available a percentage to the creditors.

An intrinsic part of the liquidator’s role would be to investigate all company affairs should they need to recover any of the company’s assets that have been misplaced or sold at less than market value from the company as the liquidator is at liberty to reverse these transactions.