Valuable Information About Liquidation

Liquidation is the process of taking a business real assets and turning them into cash, either to pay off debt or to reap a personal profit. Liquidation may be done either voluntarily by a company or individual, or in response to a declaration of bankruptcy as a way of repaying a portion of debtors.

Compulsory liquidation is ordered by a court, and the laws vary in different countries. Usually a court-appointed receiver takes over to analyze the company s assets and determine the best way to handle them. Originally, recovered cash from a compulsory liquidation was distributed evenly amongst debtors. Now certain debtors may take precedence over others, depending on the terms of the loans.

Voluntary liquidation may be done for a number of reasons. Some companies elect to undergo liquidation while their assets still outweigh their liabilities, if they believe their business will continue to degrade. By selling off assets early, these corporations may pay off debtors and still give a final dividend to shareholders.

A corporation with liabilities outweighing assets may also undergo voluntary liquidation, expecting a compulsory liquidation should they fail to pay off a significant portion of their debt. This type of voluntary liquidation is considered an appropriate response to an insolvent situation.