Dissolution Vs. Liquidation For Businesses

By on December 19, 2012

In order for a business to decide and understand if they are conducting dissolution of their business, or they are liquidating a business, one needs to understand the meaning of the terms first. Dissolution and liquidation are different, but only by a very fine line. Dissolution of a business basically ends the legal name and entity of the business, shutting the doors on aspects of business. The business is closed for good. Liquidation may come to the same end result, but assets, inventory and anything of value will be liquidated or sold-off in a means to pay off creditors and secure more cash before the business dissolves. The dissolution can occur first as well, as in a business partnership that has fallen through and dissolved the company (in which case, the assets must be sold off.)

Pre Pack Insolvency
The decision to dissolve a business may not be necessary, as it can be possible to claim and work out a pre-pack insolvency. A pre-pack insolvency allows a company to dissolve while keeping the associated debt, but also start-up again as a new company. The previous company will then go into a pre-pack administration or pre-pack liquidation, while the new company starts fresh. This is a desirable alternative, as a dissolution affects customers, clients, staff and the daily workings of a company basically ceasing. With the pre-pack insolvency option, the first step to moving forward keeps a near seamless operation of daily activities in motion. A pre-pack insolvency professional can help with this transition.

When a pre-pack liquidation is chosen as the best option, the old assets of the former company still transfer to the new company. The difference between pre-pack liquidation and pre-pack administration is really determined by the pressure being place on the company. If there are time pressures, landlord pressures, or assets that are about to be physically picked up by bailiffs, then Administration is usually the best option. Pre-pack liquidation is usually the first choice for many businesses.

Liquidate
The decision to liquidate, rather than dissolve a business, may be the better option. While the process may be lengthier, often times it is not, and the end result means that the business can be “re-born” into a new business that can both correct past problems and grow in the future. Once a business chooses dissolution, that’s it – there’s no going forward unless it involves starting from scratch.  While it may be less stressful to choose this option, it also ends a business in its entirety. It is much more beneficial to choose a liquidation process. By contacting a local professional in these matters to get advice on making the best choice, there is an opportunity to possibly save the business.

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Cormac Reynolds writes for Finance 7 a UK company who provides a range of pre pack insolvency services to businesses.

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