The Liquidation Process: What It Is and How It Works 1

What is the Liquidation Process?

The liquidation process is a legal process that takes place when a business is unable to pay its debts and its assets are sold to pay back creditors. This process is also commonly known as bankruptcy liquidation, where the business is liquidated to generate cash that is then used to pay off debts to its creditors. While the liquidation process sounds like a grim business event, it is crucial to the orderly winding up of an insolvent business’s affairs. Discover more information on the subject within this carefully curated external source we’ve arranged for you., obtain essential and supplementary insights that will deepen your grasp of the topic.

How Does the Liquidation Process Work?

The liquidation process typically has three key players – the debtor, the liquidator, and the creditors. It begins with the debtor submitting a petition to the court, requesting the liquidation of the business. Once the court order is granted and the liquidator has assessed the assets and liabilities of the business, they will begin to liquidate the assets, which can include everything from stock, machinery, and equipment to office furniture and company vehicles.

In the context of an insolvent company, liquidation would occur to pay the company’s creditors. Under normal circumstances, secured creditors are paid first, then unsecured loans, and lastly, equity shareholders. If there is surplus cash after paying the creditors, the liquidator will distribute the balance to the shareholders. If there are pending legal proceedings against the business, these must be resolved before the revenue generated by liquidation can be distributed among the creditors. Curious to learn more about the topic? We’ve got you covered! business closure, check out the external source for more in-depth information and fresh perspectives.

The Benefits of the Liquidation Process

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The Liquidation Process: What It Is and How It Works 2