Liquidation
Candlefocus EditorAt the start of a liquidation, the company’s assets are sold off and its liabilities are calculated. A trustee appointed to oversee the liquidation may coordinate asset sales and negotiate payments with creditors. The trustee determines the worth of each claim and develops a payment plan to allocate the liquidation proceeds among creditors. In order to stimulate sale proceeds, assets are often sold at discounts. These asset sales may include the sale of business property, such as inventory, land or office equipment, or the sale of intangible assets, such as trademarks and patents.
In some cases, it may be more beneficial for a business to liquidate some of its assets prior to filing for bankruptcy. In these situations, a company can raise money through the sale of assets and can use those funds to pay creditors, halt business operations, and reduce the amount of debt owed.
Liquidation can also be voluntary, meaning that a company can liquidate without going through the bankruptcy process. In these cases, the company’s management team may choose to liquidate assets in order to pay creditors and solvency is not an issue.
Once shareholders, creditors and other stakeholders receive their rightfully owed money from the liquidation proceeds, the company is no longer legally in existence. The incorporation documents are rescinded and the company is declared legally inactive.
In conclusion, liquidation is the process of bringing a business to an end and distributing its assets to claimants. It usually occurs during the bankruptcy process under Chapter 7, where proceeds are distributed to creditors in order of priority. Assets are sold off and its liabilities are calculated by a trustee, who also develops payment plans to allocate the liquidation proceeds. Liquidation can also be voluntary, meaning that a company can liquidate without going through the bankruptcy process. Finally, once distribution is complete, the company is no longer legally in existence.