The liquidation value is usually determined by a qualified professional appraiser, who will provide an estimate so that the company can decide if it actually wants to go through with the process.
Another factor that can influence liquidation values is the state of the market at the time of the liquidation.
In addition, the term "liquidation" is sometimes used when a company wants to divest itself of some of its assets.
This is used, for instance, when a retail establishment wants to close stores.
The most senior claims belong to secured creditors, who have collateral on loans to the business.
These lenders will seize the collateral and sell it—often at a significant discount, due to the short time frames involved.
If that does not cover the debt, they will recoup the balance from the company’s remaining liquid assets, if any. These include bondholders, the government (if it is owed taxes) and employees (if they are owed unpaid wages or other obligations).
In finance and economics, liquidation is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations as and when they come due. Bankruptcy Code governs liquidation proceedings; solvent companies can also file for Chapter 7, but this is uncommon.
According to an article by Andrei Shleifer and Robert W.
Vishny that appeared in the Journal of Finance, "When a firm in financial distress needs to sell assets, its industry peers are likely to be experiencing problems themselves, leading to asset sales at prices below value in best use.
See Liquid.] The whole poetry-loathing world had the face of Dr Wapenshaw but, he felt, having soundly and legitimately bemerded that face in imagination and micturated on it also, the world was content merely to loathe, while Dr Wapenshaw had had to go further, deliberately assets to replace the money in Cord's account, and she wanted to ask him if he needed help, but an intimate knowledge of Blackstone pride kept her from making the offer.
Many factors can contribute to tough financial times for a small business, including a struggling economy, hostile takeover, natural disaster, or illegal activity such as theft or fraud.
Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation.