Business Liquidation Process
When a company can no longer afford to pay its debts, it becomes insolvent on its debt. At that point, the business can file for bankruptcy and enter the liquidation process. During business liquidation, the assets of the company will be sold and some of the creditors might be repaid.
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Voluntary Liquidation
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When the board of directors for a business realize that it will no longer be able to meet the obligations of the company, it can move for a voluntary liquidation. This process can involve voluntarily filing for Chapter 7 bankruptcy and beginning the cessation of business activities. It could also involve avoiding filing for Chapter 7 and handling the liquidation process internally. In this situation, the business sells its own assets and pays its creditors directly.
Involuntary Liquidation
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Some businesses are forced into involuntary liquidation. With this process, the creditors of the business force the company into liquidating its assets. When a company is in deep debt, the creditors of that business might demand payment. This leads the company to have to file for Chapter 7 bankruptcy and repay the creditors through the money that is raised by selling its assets. A bankruptcy trustee will be appointed to liquidate the assets and pay creditors.
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Liquidation Sale
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Once it is determined that a business will liquidate its assets, it might hold a liquidation sale. A liquidation sale is a type of sale in which a liquidator sells all of the assets of the company. With this type of sale, an auction format is generally used. This allows the company to get the highest price possible for its assets. For buyers, this can be an attractive time to find good deals on equipment and other goods.
Investors
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When a company goes into liquidation, it must try to pay back the investors in the business. Investors in debt instruments such as corporate bonds will be paid back first after the secured creditors are paid. Then, preferred shareholders in the company will have the next shot at getting paid back. If there is anything left after these groups have been paid, common stockholders can be paid back for their investments.
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