Browsing: Liquidation

Liquidation is the formal process of closing a business and distributing its assets to pay off debts and obligations. This usually occurs when a company is insolvent, unable to meet its financial liabilities, or when the owners voluntarily decide to shut down the business. During liquidation, the company’s assets, such as inventory, equipment, property, or investments, are sold off to generate cash. The proceeds are then used to pay creditors in a specific legal order, starting with secured creditors, followed by unsecured creditors, and finally, any remaining funds may be distributed to shareholders.

There are two main types of liquidation: voluntary and compulsory. Voluntary liquidation is initiated by the company’s owners or shareholders, often when they see no future viability or prefer to exit the business. Compulsory liquidation, on the other hand, is usually ordered by a court when a creditor files a petition due to unpaid debts. Once the liquidation process begins, the business ceases normal operations, and a liquidator is appointed to oversee the process. Liquidation marks the end of a company’s legal existence and is often seen as a last resort when recovery or restructuring is not possible.