Liquidation Vs Bankruptcy

Bankruptcy and liquidation are often confused and used interchangeably, but these two terms are actually quite different. Bankruptcy and liquidation both involve a person or business being unable to repay their debts. So, what are the differences?

Key Differences

The key difference is bankruptcy only ever applies to individual persons and liquidation can only apply to businesses operating as a company. Bankruptcy is a legal state where an individual is declared insolvent, with certain legal consequences, while liquidation is a means or tool to shut down a company in an orderly way.

Additionally, while bankruptcy last only three years, liquidation always leads to a permanent closure of the business. And bankruptcy is usually only due to insolvency, while liquidation could be initiated because of insolvency or because the members of a solvent business want to close it down.

Bankruptcy often concerns an individual and his or her creditors whilst liquidation can impact more parties. Directors, shareholders, creditors, and employees could be impacted by a company going into liquidation, whether it is through termination of employment, recovering debt, or not successfully recovering debt.

Bankruptcy usually happens due to insolvency, but companies that enter liquidation could do so because of insolvency or some other reason. A solvent company can choose to liquidate because its members choose to stop operating, or for some other reason. Both liquidation and bankruptcy can be involuntary or voluntary, and both concepts involve managing assets and paying debt where possible, and both are options of last resort.

Understanding the difference between liquidation, bankruptcy, and insolvency allows people and businesses to better identify their situation when problems arise. It also helps them understand how they can get assistance with their financial matters in order to avoid bankruptcy or liquidation.

If you would like to liquidate your business or find out more about your rights and options, Straits Lawyers are here to help. Simply send us an email at info@straitslawyers.com or give us a call on 8410 9069 to arrange an appointment for an interview.

Alternatively, you can book an online consultation with us via this link: https://straits-lawyers.square.site/product/online-consultation-/11?cs=true

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.