The case for liquidation versus other options
IN COMPANY-SPEAK, liquidation is akin to running out of road in the middle of the desert – resources have been depleted, there is no longer any chance of survival and the coyotes are circling. Treasury Holdings is officially moribund.
The most crucial difference between liquidation and its insolvency sisters – receivership and examinership – is in its finality. The object of the exercise is to wind up the company so that it is no longer in existence, while repaying debts from whatever assets might have survived.
The process is meant to be orderly, although the experience of Treasury to date suggests this might be a lofty aspiration.
The individual leading a liquidation – in this instance provided by accountancy firm Grant Thornton – immediately takes the place of the company’s directors and assumes control.
In Treasury’s case, the liquidation has been ordered by the court on foot of a request from KBC Bank, which says it is owed more than €70 million by the company and sees no other way of getting its money back. In other instances, the liquidation might be voluntary – for example where a solvent business owner is retiring and wants to close the shop.
The liquidator’s first job is to draw up a list of a company’s debts and to whom they are owed. Next, the available assets will be investigated, with a view to matching the two as far as possible.
This will see Treasury’s properties being sold to raise funds, with the liquidator also holding the power to have properties returned to the company that may earlier have been removed from it.
Receivership holds many of the same consequences for a company’s directors, in that it sees them relinquish their powers amid financial difficulties. It does not, however, always equate to the death of a company.
The receiver, again usually an accountant, will be appointed when a company has failed to repay a debt, typically to a bank. A receiver’s duty is owed to the creditor whose request led to the appointment, so the main objective of the process will be to sell assets and raise enough (or at least something) to cover that loan.
In theory, the business could be returned to its directors after the process has been completed, but if few or no assets remain at the end, it will probably end up in liquidation. If, on the other hand, one bad debt was weighing down an otherwise viable operation, it could re-emerge.
Examinership comes at the most optimistic end of the insolvency spectrum, with the goal of shielding the company from creditors for a period while an examiner devises a scheme to maintain it as a going concern.
This usually sees creditors agreeing to accept a proportion of the debt owed (eg 20 cent in the euro), allowing the company to re-emerge as a leaner, more efficient and more effective entity.