Today’s business survival has been an extreme challenge in any corporate firm around the world. The ongoing impact of the global pandemic has brought organisations to face liquidity and operational difficulties, creating uncertainties to continue as a going concern.
In the absence of the right risk management strategies, the idea to preserve the business may no longer remain viable, leaving the company with no option than to undergo closure. This manner, however, does not entail the end of corporate responsibilities. Companies have to still undertake the dissolution process as per the procedures of the State law and supplementarily settle the affairs with its stakeholders – through corporate liquidation.
What is Corporate Liquidation?
Corporate Liquidation is the process of winding up the company’s affairs, which generally includes the realisation of the remaining corporate assets to equitably distribute the proceeds among the claims of its creditors and residually, investors. There are many liquidation services available in your area of jurisdiction. You can find a lot of professional financial consultants that can help you in closing your business affairs properly. You can start searching terms like liquidation services in Dubai or company winding up in Seychelles.
There are 2 types of Liquidation: Voluntary and Forced.
Voluntary liquidation is the instance where a company elects to undergo liquidation for either of the following reasons:
1. The business decides to cease operations due to insolvency; or Although solvent (which means assets are still worth more than liabilities), the company no longer expects to realise future returns or see it financially viable to continue.
Hence, the decision to liquidate under the voluntary type lies in the control of the company’s board of directors.
2. On the other hand, forced liquidation occurs when the decision to liquidate comes from a court order. This happens when creditors file a petition to dissolve the company on grounds of inability or unwillingness to pay after statutory demands have been served. In this situation, a court usually appoints a receiver to administer the liquidation.
Implication to Accounting
When conditions show that liquidation is to be highly expected, professional accountants of the business should prepare the financial statements on a liquidation basis. Apart from the normal accounting, this allows:
- Recognition of assets that are possible to be sold or worth to be used in paying off liabilities (e.g. internally generated intangible assets – brand name and customer lists; collector’s items/pieces of art previously unrecognized)
- Accrual of estimated asset disposal costs (e.g. advertising fees, dismantling costs, transfer title fees)
- Accrual of income and expenses that are expected to be earned or incurred through the end of the liquidation period (e.g. expected revenues from ongoing projects, salaries and employee wages, liquidation expenses, interests from borrowings, etc.)
Another product required in the process is the Statement of Affairs. Accounting liquidation supports the preparation of this report in the context of determining the valuation of assets and liabilities of the company. This gives creditors and shareholders an overview of the best-estimate financial position and how likely would they be settled upon distribution.
How we can help?
Our team of liquidation experts have aided various successful business closures since 2018. Thousands of satisfied clients have availed our liquidations services in UAE, not only that, we also offer a wide range of accounting services in the Philippines and we have a full fledge of accountants based in the Seychelles. With our expertise in this field, we assure you that we will act in the best interest of everyone involved and assist you in each step of the process wherever you are located in the world. Contact us now!