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What Is Winding Up
What Is Winding Up
KEY TAKEAWAYS
Compulsory Winding Up
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.
Voluntary Winding Up
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.
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.
Real-World Examples
For 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.1
It 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.2
In 2020, the company also began expanding again in the U.S., opening more
stores, as it felt there was an opportunity for its goods.3
Circuit City
RadioShack
Blockbuster
Borders Group
All of the above retailers were in deep financial distress before filing for
bankruptcy and agreeing to liquidate.
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