As said earlier, not all liquidation is as a result of insolvency.
A company may also undergo a voluntary liquidation, which occurs when shareholders of the company elect to wind down the company.
The person appointed liquidator, either by the company directors/shareholders or the creditors, sells off the company's ASSETS for as much as they will realize.
If there are insufficient funds to pay all creditors (INSOLVENCY), preferential creditors are paid first (for example, the INLAND REVENUE for tax due), then ordinary creditors pro rata.
Liquidation often has a negative connotation for this reason. Case Study If eliminating dividends, laying off employees, selling subsidiaries, restructuring debt, and, finally, reorganization under Chapter 11 bankruptcy fail to resuscitate a business, the likely outcome is liquidation.
The settlement of the financial affairs of a business or individual through the sale of all assets and the distribution of the proceeds to creditors, heirs, or other parties with a legal claim.
The liquidation of a corporation is not the same as its dissolution (the termination of its existence as a legal entity).
An asset that is not performing well in the markets may also be partially or fully liquidated to minimize or avoid losses.
An investor who needs cash to fulfill other non-investment obligations, such as bill payments, vacation expenses, car purchase, tuition fees, etc. Financial advisors tasked with allocating assets to a portfolio usually consider, among other factors, why the investor wants to invest a certain amount of money and for how long s/he would like to invest for.
An individual may also decide to liquidate assets, such as house and land for cash.