Stakeholder Issues - Liquidation

Creditors:

Creditors are people / firms the business owes money to such as banks (debts) and suppliers (Accounts Payable).

Creditors that have security for their loan (such as a mortgage) are first in line to receive their money upon liquidation. This is a condition of their agreement to lend money to the company.

Unsecured creditors (such as suppliers giving trade credit) may not get their money back at all. This can be very damaging for their business.

Employees:

Employees lose their jobs (source of income and wellbeing). They are forced to reconsider changing employment and developing new skills. This may require a large change in living circumstances, disrupting families.

Employees are second (!) in line after liquidation to have their outstanding wages and superannuation paid. 

This can result in challenging circumstances for the employee and their family. 

Shareholders:

Shareholders rank last in the return of their invested money upon the liquidation of the firm they own.

They are unlikely to receive any money (this would mean that the sale of all assets was greater than the debts owed to creditors). Substantial amounts of money can be lost.

Shareholders (owners) have limited liability. They only lose the amount of money they invested into the firm. Personal assets cannot be obtained and sold to pay for business debts.

Company Directors:

Directors make collective decisions regrading the strategic direction of an incorporated firm.

Depending upon the circumstances of the liquidation, and the role played in the company’s downfall, directors can be held liable; losing personal assets (fines) and being disqualified to hold a directorship position in future.

Directors have a fiduciary duty to shareholders (the owners) to ensure that their money is used appropriately and wisely. If not, they can be sued by shareholders.

Society and Economy:

The liquidation of a company can have large flow-on effects in the community; especially if the company was a large employer in a small community.

It can result in the death of a community as ex-employees move away in search of employment.

Liquidation is a destruction of wealth that could have been better used elsewhere in the economy. The loss of productivity, jobs and income can result in lower consumer and business confidence.