Liquidation

Encyclopedia : L : LI : LIQ : Liquidation

This article is about the finance term. For other uses, see Liquidation (disambiguation)

Liquidation, or winding up, refers to a process whereby the assets of a business are converted to money. The conversion may be coerced by a legal process to pay off the debt of the business, or to satisfy any other business obligation that the business has not voluntarily satisfied. The person legally put in charge of the implementation of liquidation is called liquidator. The conversion may also be a voluntary action carried out by the business owners.

Liquidation is one of the forms of "insolvency" in the Courts of England and Wales and is used when the other methods of corporate recovery have failed. There are two forms of Liquidation - compulsory (or Court ordered winding-up) and voluntary (creditors or members winding-up).

The purpose of a liquidation is to realise the assets of the company in order that the creditors of the company can be paid off.

Although the initial principle of liquidation was that the creditors would be paid off pari passu, i.e. all creditors would receive an equal share of the assets of the company in accordance with the debt they were owed, there are now a number of classes: debenture or fixed charge holders, preferential creditors, floating charge holders and unsecured creditors.

Informally, liquidation may be used to refer to any rapid conversion of an asset into cash.

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