If the business is a sole proprietorship, it does not exist as a separate entity from its owner, who may file for bankruptcy under various provisions, depending on the circumstances. Companies that desire to cease operations may declare bankruptcy, but this is not their only option. The liquidation of assets and cessation of operations can provide protection against creditors' claims and litigation; however, there is a risk that they will sue the management if they suspect wrongdoing. Consequently, bankruptcy also provides a distinct type of protection. Reorganization is yet another option that can help companies escape from existing obligations that are too burdensome to bear and also free up cash. However, management must recognize that a successful reorganization will necessitate a high level of participation on their behalf and may incur substantial legal fees.
Liquidation is considered a viable option for enterprises that are not capital intensive, have few physical assets, or have no future. The following must be thoroughly considered by a business that has chosen to liquidate:
Care must be taken to ensure that the asset size and value list is exhaustive. Intangible assets such as brand names, customer relationships, work in progress, patents and trademarks, licenses, etc. are also included among the assets. All of these must be meticulously valued and compared to market prices. On their online marketplace, specialized firms like Liquidator Services can assist auction inventory. Some financial assets, including deposits with service providers or landlords, are frequently difficult to recover and must be accounted for. Finally, it must be determined what proportion of assets is secured by debt.
While it is essential to determine how much the company owes and to whom, special attention must be paid to debts for which the management and other officers are personally liable, such as outstanding sales taxes. The company's debts that are secured in some fashion by its assets may also be a cause for concern.
Since creditors are entitled to the proceeds from the liquidation of assets, the management must make every effort to obtain a fair price. When management employs a """"do-it-yourself"""" strategy and decides to sell the assets, a higher price realization is typically anticipated. However, it is also advisable to obtain the assistance of other specialists, brokers, and advisors.
In contrast, a company that chooses to file for business bankruptcy must delegate the disposal of its assets to a bankruptcy trustee, which typically means that the assets will not garner the highest price. Nonetheless, the officers of businesses that file for bankruptcy are generally immune from lawsuits brought by angry creditors. In exchange, they must endure the not insignificant legal fees and inevitable delay associated with bankruptcy proceedings.""
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