What Is Liquidation? In the fields of finance and economics, liquidation refers to the process of closing a business and distributing its assets among claimants.
What Is Liquidation?
In the fields of finance and economics, liquidation refers to the process of closing down a business and distributing its assets among claimants. It is an occurrence that typically takes place when a business is bankrupt, or unable to make its debt payments on time. As business operations come to an end, the remaining assets are distributed to shareholders and creditors according to the order of priority of their claims. General partners are subject to liquidation.
The term liquidation may also be used to refer to the selling of poor-performing goods at a price lower than the cost to the business or at a price lower than the business desires.
How Liquidation Works
The US Bankruptcy Code's Chapter 7 governs liquidation proceedings. Companies that are solvent may also apply for Chapter 7, but this rarely happens. Chapter 11 bankruptcy, for instance, involves rebuilding the bankrupt company and restructuring its debts. In Chapter 11 bankruptcy, the company will continue to exist after any obsolete inventory is liquidated, after underperforming branches close, and after relevant debts are restructured.
Business debts continue to exist after Chapter 11 bankruptcy, unlike when people file for Chapter 7 bankruptcy. The debt will continue until the statute of limitations has run its course, and because the debtor is no longer around to make good on the loan, the creditor must write it off.
What Is Liquidation? How Does It Work? - Hopefully, this article can help you to get some knowledge.
