What is a Corporate Liquidation and How Can it Go Wrong?

Corporate liquidations are far more common than most people realize and are an integral step in ensuring the successful wind-down of many businesses. When done improperly, though, a corporate liquidation can result in serious legal and financial headaches that can outlast the company itself. But what exactly is a corporate liquidation, and how can it go wrong?

Explaining Corporate Liquidations

A corporate liquidation is one of the essential steps to closing a corporation that is winding down its business. In the process of liquidation, a company sells off its assets, including any physical property it possesses, as well as any valuable intellectual property, such as copyrights, patents, or trademarks. This money goes towards paying off any outstanding debts or liabilities.

Why Do Corporate Liquidations Happen?

Corporate liquidations typically happen for one of two reasons. The first reason is that the company has become insolvent due to overwhelming debt or a lack of income, and the company is being dissolved in bankruptcy. The second reason is that the corporation’s owners have decided to voluntarily wind down their business, which can happen because they no longer wish to run their business, or because it is no longer profitable to do so. In either case, there are significant legal and financial issues that may arise during the process of the liquidation.

How Can a Corporate Liquidation Go Wrong?

While a corporate liquidation may be simple in theory, in practice it can be complicated to sell off all a company’s assets in a relatively short amount of time. In addition to the ordinary legal issues that can occur when selling corporate assets, there may be issues related to debt obligations or tax liabilities. There may also be additional problems if the liquidation is happening through bankruptcy, in which case the bankruptcy court will have a say in just about everything. All this complexity can result in problems that may require litigation to sort out, if not handled properly.

First, Don’t Leave Valuable Assets Behind.

Marshaling all the assets of the corporation is a critical function of a liquidator. We are familiar with many corporate liquidations in which millions of dollars in assets were left behind by the liquidator. Some of those lost asset cases arise when the liquidating entity has a long pending bankruptcy claim. It’s not uncommon for a bankruptcy case to take years to conclude. When it does, trustees send distribution checks to claimants at their last known address. If the creditor has closed that office and liquidated the check is cancelled and the money eventually winds up in the U.S. Treasury or State unclaimed property funds lost to the corporations and their stockholders forever.

How Can I Stop That From Happening?

You should never attempt to handle matters related to a corporate liquidation by yourself. It is a legally complex matter with many potential pitfalls, and if you handle it poorly, you could wind up untangling the legal and financial consequences for years. The best way to protect yourself from potential problems is to get help from a lawyer with knowledge of corporate liquidation law.

Let the commercial lawyers at Poulson Law help you with your corporate liquidation. With our assistance, you can minimize your legal risk and ensure the process goes as smoothly as possible. The sooner you call, the sooner we can get started helping you and your business. If you are interested or believe you may have need of our services, please call our Cooperstown office at 607-547-1195.

 

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