Bankruptcy usually occurs as a result of a bankruptcy filing.
Judicial liquidation is a situation in which someone is appointed to take control of a failed business, with the aim of recovering as much of a loss as possible. A less serious form of control known as guardianship is to appoint a person or entity to oversee a business that appears to be in trouble, with the goal of helping the business get back on its feet. As a general rule, when a company goes bankrupt, it’s bad news for that company and for people who have entangled investments in the company or their interests.
Various situations can lead to liquidation. Sometimes a company’s creditors insist on the appointment of a trustee, with the aim of preserving as much of the assets as possible so that they can be repaid. In other cases, a court may appoint a trustee as part of the terms of a bankruptcy decision. A government can also bankrupt a company. In the United States, for example, the Office of the Comptroller of the Currency has the authority to place banks under receivership in the event of bankruptcy.
Typically, once a company is placed in receivership, the trustee liquidates the company’s assets. This is usually the fastest way to recoup the company’s losses and compensate the investors involved in the company, although it also leads to the closure of the company as an entity. Since court liquidation usually occurs as a result of a bankruptcy filing, most businesses are set to be dissolved at the end of bankruptcy.
Financial institutions, corporations and regular businesses can be placed in receivership. As long as a company is in this state, its articles of association will normally remain intact. The trustee has authority over the operations and disposition of the business, and determines how, when, and where the assets will be sold. He or she may also have the power to make arrangements with major creditors if it becomes clear that the company’s assets will not fully compensate all creditors.
Guardianship is considered a less extreme option than bankruptcy, because it is designed to maintain the business and terminate it when someone demonstrates the ability to replace the guardian. In some cases, a government may designate a government agency or public official as conservator, effectively nationalizing the company involved. In this process, the company is controlled by the government, but it has the possibility of surviving, instead of being liquidated. In the future, there is also the possibility that the conservatorship will be abandoned, allowing the company to return to the private sector.