The main difference between receivership and liquidation lies in the goals that each tries to achieve. A receiver is appointed by a specific secured creditor of the firm whereas a liquidator may be appointed by the court, shareholders or company creditors. Receivership and liquidation are terms are that are very closely related to one another as they both describe a process that firms utilize to collect and sell off company assets, and utilize proceedings to meet the company’s financial obligations. What is the difference between Liquidation and Receivership? On the other hand, a company may go into liquidation voluntarily if they feel that they should wind up the business as a going concern while their assets are still higher than their liabilities.
Compulsory liquidation can be ordered by a court of law where a court appointed party known as the liquidator takes charge of the company’s assets. Creditors are paid out depending on the order of priority, where secured creditors come first in line. The main aim of liquidation is to sell off the company’s assets and repay dues to all creditors. Liquidation can occur voluntarily or can be made compulsory as a result of declaring bankruptcy. A company has to be liquidated because it is insolvent and is unable to meet financial obligations to its creditors. Liquidation is the process that a company goes through when winding up operations. This is with the aim of selling off the business as a going concern, to maximize the value for which the assets can be sold. There is, however, a possibility that the receiver may run the company in the short term.
If the holder of the charge is a bank or creditor whose aim is to recover their dues, the main aim of the receiver is to sell off any assets and secure the best payout for the creditors. The receiver is primarily responsible to the party by whom he was appointed and has to serve the interests and needs of the holder of the charge of the business’s assets. The receiver usually has control over some or a majority of the firm’s assets. A party known as the receiver is appointed by where a charge is created for all of the company’s assets including company goodwill. The aim of a receivership is unique to each case and depends upon the needs of the party who appointed the receiver, who is usually either banks or creditors. Receivership is a procedure that is followed by a company that is facing a very high risk of insolvency or is currently under bankruptcy proceedings. The article offers a clear overview of each procedure and explains the difference between receivership and liquidation. While both receivership and liquidation are initiated during times of financia l distress the aims of each are quite distinct to one another. Receivership and liquidation are both processes that a company goes through in winding up business operations. A firm that is insolvent has to get their affairs in order, sell their assets and make arrangements to meet their debt obligations. Also, an overview on bankruptcy and insolvency is important to get a clear picture of these two terms, receivership and liquidation. A business faces insolvency when they are unable to meet their financial obligations.
It may be difficult to understand the difference between receivership and liquidation as they are terms that are very closely related to one another.