how winding up works
winding up a business is a legal process regulated by corporate laws as well as a company s articles of association or partnership agreement winding up can be compulsory or voluntary and can apply to publicly and privately held companies a company can be legally forced to wind up by a court order in such cases the company is ordered to appoint a liquidator to manage the sale of assets and distribution of 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 insolvent because their bills have remained unpaid in other cases the winding up is the conclusion of a bankruptcy proceeding which can involve creditors trying to recoup money owed by the company in any case a company may not have sufficient assets to satisfy all of its debtors entirely and the creditors will face an economic loss a company s shareholders or partners may trigger a voluntary winding up usually by the passage of 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 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 usually because of its diminishing prospects or its inadequate contribution to the parent company s bottom line or profit winding up vs bankruptcywinding up a business is not the same as bankruptcy though it is usually a result of bankruptcy bankruptcy is a legal proceeding that involves creditors attempting 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 conversely once the winding up process has begun a company can no longer pursue business as usual the only action they may attempt is to complete the liquidation and distribution of its assets at the end of the process the company will be dissolved and will cease to exist example of winding upfor example payless the shoe retailer filed for bankruptcy in april 2017 almost two years before the business finally ceased operations under court supervision the company shut down about 700 stores and repaid about 435 million in debt four months later the court allowed it to emerge from bankruptcy 1it 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 at the time the liquidation in 2019 did not have any effect on its latin american operations which in 2020 when the company emerged from bankruptcy was its new focus 2in 2020 the company also began expanding again in the u s opening more stores as it felt there was an opportunity for its goods 3some other examples of well known american companies that were liquidated or wound up includeall of the above retailers were in deep financial distress before filing for bankruptcy and agreeing to liquidate 