A dissolved corporation is a business organization that has either chosen or been forced to close permanently, ending the contracts that formed the organization. A company that dissolves must go through a series of steps to deal with all current issues and fully close. Many of these steps deal with closing debt accounts with creditors. This is done by creating a trust that holds all the business assets and is managed by a trustee in much the same way a private bankruptcy is handled.
Dissolving Company Assets
When a corporation dissolves, all its assets are typically liquidated, or turned into cash, and used to deal with current debts and the fees associated with dissolution. These are the assets that go toward paying creditors that have not collected what is owed them. The trustee of the dissolved corporation will begin by collecting information on all the business's current creditors. The trustee then sends each creditor a notice of the dissolution and what effect it may have on their debt.
Creditors respond to the notice by submitting claims to the dissolved corporation for the money that they are owed. Not all creditors send claims, but it is common. Many creditors recognize that a failing business will not have many remaining assets to cover debts. Holders of senior debt and other types of debts that are secured by specific assets will not hesitate to make claims, because the money they are owed is backed by something substantial, strengthening their claim. For instance, the holder of a mortgage is in a strong position to make a claim, because the loan is backed by a piece of property.
Hierarchy of Repayment
When the trustee actually liquidates assets and begins paying off creditors, the hierarchy of the debt is reflected in the repayment. First secured debts and any other senior debt is paid off, then bonds and any subordinated debt, then shareholders. The highest priority debts are those secured by assets or important bank loans, as well as debt owed to the federal government. After these debts, the dissolved corporation will begin paying off private investors holding bonds and nonsecured loans. At this point most of the company funds are typically gone, but if any remain, then the business will reimburse any preferred shareholders and then any common stockholders as the last step in repayment.
After the business is dissolved, and all assets have been used to pay off creditors, the business no longer exists and creditors will not be able to seek further payments. This occurs when a business is dissolved entirely. In some cases, a dissolving business may be bought by another company, which may acquire some of the debt and pay it off itself. The details can vary based on negotiations and laws regarding debt.
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