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Definition: Liquidation

Liquidation refers to the last stage when a company has no alternative but to sell off its assets to pay off debts. It is implemented when it is evident that a company can no longer exist as a going concern and the assets fetch more value than its endeavours.

The ‘proceeds’ obtained from the selloff are used to pay debts and the surplus, if any, is distributed to the stakeholders.

Further, there might be instances when an owner of a firm is not debt ridden but somehow just wants to get rid of the firm because of certain other interests. This can also lead to liquidation.

The components that are liquidated can be the following-

  • Machinery
  • Real Estate

IN LAYMAN TERMS-A Company has loads of debts, business hasn’t got enough value to pay in the near future, the creditors would want to auction this company’s machines, lands etc. to recover their money. This selling of assets to clear off debt is liquidation. It may be done by creditors or the owner themselves.

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