Insolvency Basics: Four Options for Company Wind Downs

When the decision has been made to wind down or dissolve a company, there are several options to consider that will serve to formally dissolve an organization while maximizing shareholder value.

There are many factors that go into choosing what option is best suited for your own company’s circumstances, and the help of a qualified advisor can ensure that you make the best decision. Here are four common wind down options.

Corporate Dissolution

A corporate dissolution is a formal process of closing a business and ending its corporate existence. This process is typically managed by a company director or a qualified advisor, and involves ending business operations, liquidating assets, fulfilling contractual obligations, paying creditors, and dissolving the corporate entity.

Bankruptcy

Bankruptcy involves making a public filing with the United States Bankruptcy Court either under Chapter 7 or Chapter 11 of the bankruptcy code. Under both types of bankruptcy, the company is awarded an automatic stay, which prevents creditors from foreclosing on a business’s assets, and a court appointed trustee is assigned to oversee the liquidation of the business’s assets and disperse those proceeds to stakeholders.

Assignment for the Benefit of Creditors

An assignment for the benefit of creditors (or “ABC” as it’s commonly referred to as) is a state-law alternative to bankruptcy that involves hiring a qualified Assignee to liquidate a business’s assets and disperse the proceeds to creditors and other stakeholders. You can read more about Assignment for the Benefit of Creditors in this Blog Post.

Receiverships

A receivership involves a court-appointed “receiver” who is tasked with preserving the value of or safeguarding a company’s assets. It involves transferring control of a company’s assets to the court-appointed receiver. The receiver may then liquidate the assets, continue to operate the business, or preserve the assets without operating the business.