When a company wounds up then it implies that it is officially closed. The assets owned by it and obligations are handled after the declaration. The business gets eliminated from the records held at Companies House.
Due to the wound-up of a business, all assets that the firm has owned get liquidated. This implies that the companies should strive to sell the assets to make a maximum effort. This will help in paying off outstanding dues to creditors and distribute the money among the stockholders.
Sale of assets
So, the first thing that the company does when it wound-up is that it put its assets for sale. These assets will be sold to third parties that may even include competitor firms.
Due to sentimental value, a director can even choose to retain all or selected assets of the company. These assets can be used either for personal use or a future business endeavor.
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After the sale
When the business sells its assets, it will make money from it. The money earned will be used to make payments to the outstanding creditors of the company. Whether a business enters into an insolvent liquidation stage voluntarily, or by forcibly, it happens when it has a big amount of debts that it can’t afford to pay.
In this case, its liabilities are greater than its assets. This implies even if all the assets of the company get liquidated then the company still owes more than what it owns.
Priority of payment
If the creditors are not able to pay in full, the selected insolvency practitioner will need to ensure that creditors get paid in accordance with a selected hierarchy. Let us take a look at this hierarchy below:
This is the first line of payment. Secured creditors have a registered charge against any specific class or asset. This includes automobiles, plant machinery, and property.
Secured creditors are classified into two groups. The first group is of those who hold a fixed charge. Examples of this group are asset-based lenders, banks, etc.
The second group is the one that has a floating charge that includes tradable and moveable assets like stock, debtor book of the company, fittings, and fixtures. Both of these groups differ based on the distribution of funds after liquidation.
This category of creditors includes employees of the bankrupt company. They have the right to claim for unpaid salary and holiday pay directly from the firm.
This is the category where maximum creditors belong to. Unsecured creditors are the ones who do not get any money when an insolvent company liquidates. Some of the examples of unsecured creditors are sellers who haven’t received compensation for the goods that they have provided to the company.
Assets of the wound-up company get affected in a multitude of ways. Depending on the type of creditors, the money that is obtained from the sale of assets will be distributed.