How Does Liquidation Affect Shareholders?
Liquidation is the process of finalising of a business’s finances and valuable assets prior to permanently closing. There are many reasons a company might choose to liquidate. Shareholders are affected by liquidation just like other associated parties.
What Happens to a Business that Cannot Pay Debts?
In the process of liquidation, businesses can be deemed insolvent. Insolvency means that the company is unable to pay their debts. With insolvency, the company has to follow on a specific path to pay its debts.
The Process of Liquidation for Insolvent Companies
If a business is insolvent, there is a specific method of paying off certain parties. All classes of creditors have to be paid their debts, which leaves shareholders receiving compensation last.
It is unlikely that shareholders will receive any form of compensation or payment when a company liquidates. Often, companies have significant debts and cannot pay their shareholders following the completion of their liquidation.
What Can Shareholders Do If This Happens?
Companies are not obligated to share financial details if a company chooses to liquidate due to being insolvent. Shareholders have access to these files and can inspect records if they contact the firm beforehand.
A capital loss can be reported if the company finalises liquidations and possibly writes an insolvency notice stating that no funds distribution will be allocated to shareholders.
Options for Shareholders
If you would like more information on the impact of liquidation to shareholders or what options are available to reduce financial distress to your company, please speak to one of our professional and experienced advisors from CRS Insolvency Services. Contact us on our 24-hour advice hotline on 1800 210 073.