What is the meaning of liquidation?

What is the meaning of liquidation? That is a good question!

Since the economy started to tumble it feels like we have been bombarded with the word liquidation in so many different contexts applying to every business possible. Still, I am not sure we all fully understand what it means to liquidate. Personally, I am very familar with the last step which is a liquidation auction…but what comes before that? I set out to find the answer to this question. Here is what I came up with…

What is liquidation?

For that answer I turned to our trusty source Wikipedia “In law, liquidation refers to the process by which a company (or part of a company) is brought to an end, and the assets and property of the company redistributed.”

Why would you liquidate?

1.) Compulsory Liquidation: According to businessdictionary.com its the Sale of the assets of a firm on court orders, issued at the request of the firm’s creditors. In a compulsory liquidation, the unsecured creditors generally have the right to choose and appoint the liquidator.

2.) Voluntary Liquidation: As listed on investorwords.com is a liquidation that is supported by a company’s shareholders, as opposed to an involuntary liquidation forced by Chapter 7 bankruptcy. (sometimes referred to as a shareholders’ liquidation).

How does it work?

Once it has been determined that a company should be liquidated, an inventory is taken of all the company’s assets. They are categorized according to how easy they will be to sell according to ehow.com. Prior to that a legal order or “stages” are followed (which I will not get into, but for more information please reference Wikipedia) leading up the final solution which is dissolution of the company. Here are some categories to consider that may be liquidated….

Inventory Liquidation:

Your inventory can be auctioned off to the highest bidder at a liquidation auction. These can be done through online auctions or live auctions and there are specific online auction sites for different industries such as home auction, jewelry auction, real estate auction and property auction. The sale of the inventory can also be negotiated with a private placement as another alternative.

Asset Liquidation:

Basically your assets are the most liquid part of your business. These are sold and the sales are used to pay off your creditors.

Machinery and Equipment

Often the most difficult assets to liquidate are machinery and equipment which can take a long time to sell. Depending on the type of equipment, months or years can pass before the fixed assets of a firm are finally liquidated. Owners may want to look into a an equipment auction as a way of expediting the process.

Liquidating Real Estate

You may immediately think of foreclosure or more specifically a foreclosure auction as a means of liquidating real-estate . However, that is not the only way, you can also go through a traditional broker as well. The main determinant in the ease of liquidating real estate is its location and the pool of buyers who have interest in the lot

What are the alternatives to liquidation?

There are alternatives to liquidation. Look into it before doing anything some references are available at insolvency.gov.uk

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