The unthinkable has finally happened. Maybe you hadn’t planned for things to turn out the way it did, maybe your strategy was not very well thought of, whatever the shortcoming was – now your company has run its course and you have no choice but to liquidate.
Company Liquidation is the process of realizing all assets and the discharging of all liabilities in concluding the affairs of a business.
If we are to analyze the reasons behind what would generally make a company liquidate, we can identify a few common issues.
The steps a company should take to liquidate depends on the type of liquidation, and whether or not the company was forced into it by the creditors or simply decided to liquidate on their own accord.
Liquidation is deemed a possibility for a business if it is eligible for a “Strike Off”. Eligibility is determined by the Accounting and Corporate Regulatory Authority, and if all requirements are
met, the firm involved will begin the preparation of documents and accounts needed for liquidation.
During a “Strike Off”, all existing bank accounts that may have any relation to the business needs to be closed, and necessary documentation provided as proof (eg: bank statements etc.)
The documentation required for the process of “Strike Off” include,
(If there are indeed any assets or liabilities, the Directors should provide proof on how they will be disposed of)
This type of liquidation forces the company to liquidate it’s assets on the orders of a “court of Creditors”, and the direction of an assigned “Liquidator”.
Once all assets have been liquidated, even though directors of limited liability companies are not usually held personally liable, if the court accuses any director of wrongful trading, they will be subjected to make a payment to the company.
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If the shareholders themselves voluntarily decide to liquidate their assets, then they may appoint a liquidator to realize the assets of the business and distribute the proceeds among the company members. This form of liquidation will allow you to extract the value of the business in the form of cash, and even save you money on taxation (as instead of being charged an Income Tax, you’ll be charged a Capital Gains Tax).
This form is very similar to Members’ Voluntary Liquidation, except for the fact that the company entering into liquidation is insolvent, and all the assets of the company will go to the creditors of the company (not the members).
And there you have it, the somewhat complicated procedure of company liquidation simplified!
After following up the procedure of liquidation as prescribed by the law the registrar of Companies in Sri Lanka finally issues a Certificate stating that the company is finally wound up and dissolved. This is the death certificate of the company so it is recorded in the files maintained by the registrar in the Company. This avoids the Company from taking part actively in trade and protects the community from fraud.
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