While both insolvency and liquidation of company are often interchanged, perhaps because they are both associated with bankruptcy, they are two distinct terms. Here we are going to differentiate them to help you make an informed decision.
Distinguishing Between Insolvency and Liquidation
Insolvency has something to do with monetary issues. Your company can be insolvent but not yet liquidated. If your company liabilities are more than the worth of your assets, then it is insolvent. On the other hand, if it is still able to pay debts when due, then your company is not cash-flow insolvent. Otherwise, it would be insolvent.
Legally speaking, if your business reaches a state of insolvency, then you can apply for a liquidation of your company. If you fail to apply for it, then you are putting the responsibility to pay off debts on the director’s shoulders. In case you reach a situation wherein you cannot pay even the salaries of your employees, the rent, and other expenses, and the liabilities are over the assets, then it’s time to have the company liquidated.
On the other hand, if you think it’s still possible to save your company with a rescue plan, you can hire a professional liquidator to oversee the process and manage the entire liquidation. In essence, liquidation of a company refers to the winding up of your business estate. One factor you should take note of is that your company does not have to be insolvent to be liquidated.
Finally, if your company or its business operations are dormant or not operating, you can close it. In this case, the best option for you to consider in order to avoid creditor claims against your company in the future is to liquidate it now. If it happens that your business is at the brink of bankruptcy, contact us for professional legal assistance on how to deal with matters concerning insolvency and liquidation of your company.
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