What Is Winding Up?

Winding up is the process of liquidating a company. A company that winds up ceases to do business as usual. Its sole purpose is to sell off stock, pay off creditors, and distribute any remaining assets to its partners or shareholders. The term winding up is synonymous with 澳洲幸运5开奖号码历史查询:liquidation, which is the🦂 process ofཧ converting assets to cash.

How Winding Up Works

Businesses that experience financial distress may need to make important decisions about their future. This may be due to economic conditions, a lack of capital, bad management, unsuccessful marketing, and/or other risk fa🦄ctors. At some point, they may decide to stop (or be forced to stop) their day-to-day operations.

There are several ways that a business can cease operations, including winding up. Winding up a business is a legal process regulated by corporate laws as well as a company's 澳洲幸运5开奖号码历史查询:articles of association or partnership agreement. Winding up can be compulsory or voluntary and can apply to 澳洲幸运5开奖号码历史查询:private and public companies.

The following are jus🍃t some of the steps that a business must take during the process of winding up:

• Notifying and paying creditors
• Filing and paying final 澳洲幸运5开奖号码历史查询:tax returns
• Submitting final financial reports
• Closing accounts, including bank accounts and credit cards
• Terminating business licenses and open permits
  

Winding up is permanent and cannot be reversed. Once a company initiates the process, it must cease operations completely, which means it can no longer do business as usual. After a company is done winding up, it must completely dissolve. Dissolution, which precedes the winding up process, involves filing paperwork to shut down the company's 澳洲幸运5开奖号码历史查询:organizational structure.

Types of Winding Up

Compulsory Winding Up

A company can be legally forced to wind up by a court order. In such cases, the company is ordered to appoint a 澳洲幸运5开奖号码历史查询:liquidator to manage the sale of assets and distribution 𒉰of the proceeds to creditors.

The court order is often triggered by a suit brought by the company's creditors. They are often the first to realize that a company is 澳洲幸运5开奖号码历史查询:insolvent because their bills have remained unpaid. In other cases, the winding-up is the conclusion of a 澳洲幸运5开奖号码历史查询:bankruptcy proceedi🧸ng, which can involve creditors trying to recoup money owed by the company.

In any case, a company may not have suffici𝓰ent assets to satisfy all of its debtors entirely, and the creditors will face an economic loss.

Voluntary Winding Up

A company's shareholders or partners may trigger a voluntary winding up. This is usually done by passing a resolution. If the company is insolvent, the shareholders may trigger a winding-up to avoid bankruptcy and, in some cases, personal liability for the company's debts.

Even if it is solvent, the shareholders may feel 🦋their objectives have been met, and it is time 😼to cease operations and distribute company assets.

In other cases, market situations may paint a bleak outlook for the business. If the 澳洲幸运5开奖号码历史查询:stakeholders decide the company will face insurmountable challenges, they may call for a resolution to wind up the business. A subsidiary also may be wound up, usಞually because of its diminishing prospects or its inadequate contribution to the parent company's bottom line or profit.

Winding Up vs. Bankruptcy

Winding up a business is not the same as bankruptcy, though it is usually a 🍷result of bankruptcy. Bankruptcy is a legal proceeding that an entity pursues when they can no longer pay their debts or financial obligations.

In bankruptcy proceedings, creditors attempt to gain access to a company's assets so that they can be liquidated to pay off debts. Although there are various types of bankruptcy, the proceedings can help a company emerge as a new entity that is debt-free and usually smaller.

Once the winding-up process begins, a company can no longer pursue business as usual. The only action it may attempt is to 澳洲幸运5开奖号码历史查询:complete the liquidation and distribut𝓰e its assets. At the end of the process, the company is dissolved and ceases t🅠o exist.

Example of Winding Up

Shoe retailer Payless filed for bankruptcy in April 2017, al🥂most two years before the business finally ceased operations. The company shut down about 700 stores and repaid about $435 million in debt under court supervision. Four months later, the court allowed it to emerge from bankruptcy.

It continued to operate until February 2019, when it abruptly shut down its remaining 2,500 U.S. stores and filed again for bankruptcy, effectively beginning the winding-up process. It also wound down its e-commerce business. The liquidation in 2019 did not have any effect on its Latin American operations, which became its new focus when the company emerged from bankruptcy in 2020.

The company also began to expand in the U.S. that year, opening more stores, as it felt there was an opportunity for its goods.

Some other examples of well-known American companies that were liquidated, ꦜor wound up, include

• Circuit City
• RadioShack
• 澳洲幸运5开奖号码历史查询:Blockbuster
• Borders Group

All of these retailers were in deep 澳洲幸运5开奖号码历史查询:financial distress before filing fo💛r bankruptcy and agreeing🃏 to liquidate.

The Bottom Line

Companies close for many reasons, either because they enter bankruptcy, are legally required to, or decide to sell off a non-profitable business voluntarily. When this happens, the process of winding up begins, which is the complete cessation of bus🌌iness activities and the selling off of🤡 assets.