Liquidation of the Assets of a Business

Lliquidation involves the closing of a business followed by the sale of the assets of that business.  The money received from the sale of assets is distributed to the company's creditors based on a specific order of priority with any remaining money going to the business owner.

From the creditors' point of view, liquidation is the last resort for an insolvent or distressed debtor. As the name suggests, liquidation involves selling the debtor's property and distributing the proceeds to creditors.  Many no-asset cases are filed which result in no payments for any creditor including both secured creditors and general unsecured trade creditors.  Sometimes, debts owed to secured creditors are so large that after liquidating all of the debtor company's assets the secured creditor(s) still cannot be paid in full.  If this happens, there is no payment [or recovery ] to general unsecured trade creditors.   Since creditors want the largest possible payment from a financially distressed debtor, they typically opt to liquidate the assets of the debtor company only as a last resort.  

One alternative to a bankruptcy filing involves conducting an informal liquidation of the assets of the business. The key issue in conducting a non-bankruptcy liquidation is control of the proceeds of the sale of the company as a whole or of its assets. Even an informal liquidation process, general unsecured trade creditors do not normally receive payment until secured creditor(s) are paid all of their outstanding balance due.

Reprinted with the permission of Credit Research Foundation.

Edited by Michael C. Dennis.  Mr. Dennis is the author of "Credit and Collection Handbook." He is a  consultant and can be reached by email at mcdennis13@yahoo.com