Finance plays a pivotal role in our lives, and while banking is the center of it, bank companies do not always succeed in delivering their services. Bankruptcy and Liquidation are two terms that are sometimes used synonymously; however, there are some fundamental differences between the two.
What exactly is Bankruptcy?
In definitive terms, bankruptcy is a legal state which occurs when an individual or a firm can no longer pay off the debts owed to them.
A petition is made either by the firm themselves, voluntarily or by the court whereby an appointed official reviews the situation of the insolvent firm and the accounts of the firm are thereafter frozen until the matter is resolved by the court. Usually, this process requires up to a few months to a year during which all legal assets are acquired by the trustee in charge. Any necessary item(s) may be sold by the trustee to raise money in an attempt to clear the debts.
The fate of bankruptcy is not always so severe. Bankruptcy may affect the future of an insolvent company or individual but it offers a chance to a fresh start once the debts have been repaid.
What is exactly is Liquidation?
Liquidation of a company is a slightly more important situation which is brought about by constant financial instability or incompetency of the company in question.
The petition is usually filed because it becomes compulsory. An official (liquidator) investigates the company’s financial situation and acquires all of the assets owned by the firm and puts them up for auction or sells them in a final attempt to resolve the debts owed. During this process, the company is no longer authorized to operate and ultimately the company name is terminated.
Business Insolvency Sydney results in irreparable damage to the company or firm which not only affects the company business but may also damage the repute of the firm as a whole.
The Difference between Bankruptcy and Liquidation
To summarize, the major differences between the two terms are:
Bankruptcy may involve either the individual or the company, whereas liquidation applies to the company only.
Where bankruptcy may occur due to an unfortunate financial crisis, liquidation usually indicates the instability of the company.
The petition to the officials and the court is usually made voluntarily by the insolvent entity in question. In liquidation, however, the company is forced to terminate its business because of the overwhelming debts.
Although both bankruptcy and Accounting Services Sydney can be damaging to the repute, liquidation is usually more severe.
Bankruptcy does not mean an end to the business and provides a window for rejuvenation. Liquidation results in complete dissolution of the business and the company name.