Dissolution is the act of bringing to an end. It is the act of rendering a legal proceeding null, or changing its character. Under corporate law, it is the last stage of liquidation. Dissolution is the process by which a company is brought to an end.
Liquidation is the selling of the assets of a business, paying bills and dividing the remainder among shareholders, partners or other investors. A business need not be insolvent to liquidate. Upon liquidation of certain business, such as a bank, a bond may be required to be posted to assure the proper distribution of assets to creditors.
Delaware Plan of Liquidation and Dissolution of a Corporation refers to the process by which a corporation registered in the state of Delaware formally winds up its affairs, settles its outstanding obligations, and ceases to exist as a legal entity. This detailed description will highlight key aspects, steps involved, and relevant variations of the Delaware Plan of Liquidation and Dissolution, including various types if applicable. 1. Overview: The Delaware Plan of Liquidation and Dissolution signifies the final phase of a corporation's life cycle. It is a strategic and carefully structured process that facilitates the closure of a business entity while ensuring its assets are distributed among shareholders or creditors according to predefined priorities. 2. Purpose and Legal Basis: The Plan of Liquidation and Dissolution is formulated to formally conclude a corporation's existence, terminate its legal obligations, and provide a clear roadmap for all stakeholders involved. The plan aims to settle all debts, obligations, and pending legal matters while distributing any remaining assets in an equitable manner. Under Delaware law, specifically the Delaware General Corporation Law (DCL), Section 280, corporations seeking dissolution must adopt a plan specifying various aspects of the liquidation and dissolution process for approval by shareholders. 3. Key Steps Involved: The Delaware Plan of Liquidation and Dissolution typically involves the following essential steps: a. Adoption: The board of directors proposes a Plan of Liquidation and Dissolution, which must be approved by shareholders. Shareholders usually vote on the plan at a special meeting or through written consent. b. Notice to Creditors and Claimants: The corporation provides notice to creditors and claimants, allowing them to submit their claims before a specified deadline. c. Settlement of Debts and Obligations: The corporation satisfies its outstanding debts, liabilities, and obligations using its available resources. This includes payment of creditors, resolution of pending lawsuits, and addressing any other claims against the corporation. d. Asset Liquidation: Assets not required to fulfill outstanding obligations are liquidated, typically through sale, auction, or distribution in-kind, resulting in cash proceeds. e. Distribution to Shareholders or Creditors: The proceeds from asset liquidation are distributed among shareholders or creditors according to their respective rights and priorities as defined by the plan. Shareholders usually receive their proportionate share based on their ownership interest, while creditors are given priority based on the type of debt owed. f. Filing and Termination: After fulfilling all obligations and distributing all remaining assets, the corporation files the necessary documentation with the Delaware Secretary of State's office to formally terminate its legal existence. 4. Types of Delaware Plan of Liquidation and Dissolution: While there is a standard process for liquidation and dissolution, variations can occur based on the corporation's specific circumstances, shareholder agreements, or the presence of distinctive factors. Some variations include: a. Voluntary vs. Involuntary Liquidation: A voluntary liquidation occurs when the corporation initiates the dissolution process willingly, while an involuntary liquidation is initiated by external forces such as court orders or regulatory actions. b. Solvent vs. Insolvent Liquidation: A solvent liquidation occurs when a corporation possesses sufficient assets to settle all obligations, while an insolvent liquidation involves a situation where the corporation's liabilities exceed its assets. Insolvent liquidations require specific insolvency proceedings as outlined by Delaware law. c. Short-Form vs. Long-Form Dissolution: A corporation may qualify for a short-form dissolution under certain circumstances, allowing for a simplified and quicker dissolution process. In contrast, a long-form dissolution entails a more comprehensive procedure, involving additional filings, notices, and court approvals. In conclusion, Delaware Plan of Liquidation and Dissolution is a structured process that enables corporations registered in Delaware to formally wind up their affairs, settle obligations, and cease to exist as legal entities. Understanding the relevant steps and potential variations can help corporations navigate this critical phase in compliance with Delaware law.
