What Is Liquidation?
Liquidation is the process of selling off assets in order to pay creditors and other obligations. It can be voluntary or involuntary, depending on whether it was initiated by the company itself or its creditors. In either case, liquidation involves converting a company’s assets into cash so that they can be used to satisfy debts and liabilities. This process typically occurs when a business has become insolvent and cannot continue operations due to financial difficulties.
The goal of liquidation is usually to maximize returns for all stakeholders involved, including shareholders, lenders, suppliers, employees and customers. During this process, an appointed trustee will oversee the sale of assets such as inventory, equipment and real estate in order to generate funds for repayment of debtors. The proceeds from these sales are then distributed among creditors according to their priority status under applicable law. Liquidations may also involve restructuring agreements with creditors in which some debt may be forgiven or converted into equity ownership in exchange for reduced payments over time.