Insolvent company liquidation
If a company becomes insolvent – for example, when it cannot pay its suppliers or employees – the correct course of action will usually be to file for liquidation. By doing so, an insolvent company will be able to settle its debts and minimize future losses. Liquidation of a company can be accomplished in two ways: voluntary liquidation or by court order.
A company's insolvency
A scenario similar to this occurs quite frequently: a company encounters financial difficulties and is unable to meet its financial obligations. A company becomes insolvent when it reaches this point. As previously mentioned, liquidation is the accepted solution in this situation. In this process, the company’s activities will cease and its assets will be seized for the purpose of selling and realizing them for the creditors’ benefit. It is important to note that although there are other reasons why a company can be liquidated, insolvency is usually the primary cause.
Court-ordered liquidation
Liquidation of a company can take place in two main ways: judicially or voluntarily. The procedure will be carried out in the first instance when a petition for liquidation has been submitted to the court. As part of the petition, it must be demonstrated to the court that one of the grounds for liquidation has been met and that continuing the company’s operations would be inappropriate. In addition to non-payment, there are other grounds for liquidation, including the fact that the company has not started its business within a year of its incorporation. It is the creditors or shareholders of a company who apply to the court for the liquidation of the company.
A company's voluntary liquidation
There is also the option of voluntary liquidation, which is not conducted through the courts, but rather on the initiative of the company or the shareholders themselves. The initiators of insolvency are usually the company’s creditors, and the court does not intervene in this process. Unless it involves a complex liquidation procedure or substantial differences of opinion between the parties. Therefore, the voluntary liquidation process can become a court-supervised liquidation process. It should also be noted that voluntary liquidation can also be decided for other reasons, such as: when an event occurs that is stipulated in the articles of association that, if it occurs, the company should be liquidated.
When can a company be defined as insolvent?
Thus, the liquidation of a company due to insolvency is a common scenario and can be carried out both by the court as well as by the company on its own initiative. Is there a point at which a company is considered insolvent? Several options are available, including: when a court order is issued in favor of a creditor and the company has not complied with it, when the court is convinced that the company is unable to pay its obligations, or when the court believes that, for reasons of justice and fairness, the company should be liquidated, such as illegal goals or other reasons.
Legal assistance is of utmost importance
Liquidation of a company requires professional legal support from a law firm that specializes in this area of law. This is particularly true when a company is liquidated due to insolvency. Therefore, it is essential to ensure that the procedure is carried out in the most efficient and cost-effective manner possible. Professional legal representation in the context of liquidating a company can be financially beneficial, so it is recommended to use said representation from the initial stage of the liquidation until the end of the procedure.
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Our Enforcement and Insolvency Department specializes in representing creditors and debtors in enforcement and court proceedings related to receivership proceedings.
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