What is voluntary liquidation?

Voluntary liquidation is an action that the company's shareholders can take in order to conceive the outstanding debts of the company. This is, unlike involuntary liquidations, such as bankruptcy in Chapter 7, where the Court orders the sale of assets to settle part of the company's debts. Directors and shareholders agree with the voluntary approach to liquidation and voluntarily start the procedure without external pressure or order from the court or other entity.

There are several reasons why the company can undergo voluntary liquidation. In the case of small enterprises, the death of the founder and the owner can lead to all shareholders who decide to continue operation. In this scenario, the liquidation of all the main assets will begin. Once all assets are converted into a cash flow and all outstanding debts are settled, shareholders will divide the remaining assets and the company will be closed.

Another example of voluntary liquidation is actually a means of helping society. Corporations that encounter a period of loss may decide to liquidate subsidiaries as a means of settlement of outstanding debts of the parent company. Of course, all indebtedness associated with subsidiary of the company will also be resolved and all remaining cash used to cover the parent's duties. This may sometimes be enough to allow the corporation to continue operation and hopefully start profit later.

The exact structure for voluntary disposal will vary depending on the size and complexity of society and the urgency associated with the settlement of outstanding debts. In many cases, the payment schedule is drawn up by the company's officials together with the list of assets to be sold. After shareholders approve a plan or sale of debt settlement, the company will contact the supplier, make payment agreements and then provide payment as soon as the assets are soldon. This process for voluntary disposal will often take place within six to twelve months.