The parties who are entitled by law to petition for the compulsory liquidation of a company vary from jurisdiction to jurisdiction, but generally, a petition may be lodged with the court for the compulsory liquidation of a company by: The grounds upon which one can apply for a compulsory liquidation also vary between jurisdictions, but the normal grounds to enable an application to the court for an order to compulsorily wind-up the company are: A "just and equitable" winding-up enables the grounds to subject the strict legal rights of the shareholders to equitable considerations.It can take account of personal relationships of mutual trust and confidence in small parties, particularly, for example, where there is a breach of an understanding that all of the members may participate in the business, Upon hearing the application, the court may either dismiss the petition, or make the order for winding-up.The company’s operations are brought to an end, and its assets are divvied up among creditors and shareholders, according to the priority of their claims. Not all bankruptcies involve liquidation; Chapter 11, for example, involves rehabilitating the bankrupt entity and restructuring its debts.
The most senior claims belong to secured creditors, who have collateral on loans to the business.
These lenders will seize the collateral and sell it—often at a significant discount, due to the short time frames involved.
The debts still exist in theory, at least until the statute of limitations has expired, but there is no debtor to pay them, so they must be written off in practice.
Assets are distributed based on the priority of various parties’ claims, with a trustee appointed by the Department of Justice overseeing the process.
The anomaly is corporate dissolution without liquidation.
In the ruling, a corporate taxpayer had been incorporated in a state on a particular date, let’s say January 19, 2007.
The three main reasons businesses consider liquidating assets are 1) when assets are no longer needed (surplus assets), 2) the business needs additional working capital, or 3) to satisfy creditors.
Before liquidating assets it may be helpful to consult your lawyer and accountant or other tax professional for assistance in planning the liquidation.
Liquidate comes from the Latin liquidare, meaning “to melt,” or “to clarify.” A recipe might ask you to liquefy the butter, not liquidate it, because liquidate has to do with assets.