[lik-wi-dey-shuh
n] 
| 1. | the process of realizing upon assets and of discharging liabilities in concluding the affairs of a business, estate, etc. |
| 2. | the process of converting securities or commodities into cash. |
| 3. | the state of being liquidated: an estate in liquidation. |
| liq·ui·date (lĭk'wĭ-dāt') v. liq·ui·dat·ed, liq·ui·dat·ing, liq·ui·dates v. tr.
[Late Latin liquidāre, liquidāt-, to melt, from Latin liquidus, liquid; see liquid.] liq'ui·da'tion n., liq'ui·da'tor n. |
The conversion of the assets of a firm into cash, often just before the firm goes out of business.
Liquidation
1. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.
2. Any transaction that offsets or closes out a long or short position.
Investopedia Commentary
Creditors liquidate assets to try and get as much of the money owed to them as possible. They have first priority to whatever is sold off. After creditors are paid, the shareholders get whatever is left with preferred shareholders having preference over common shareholders.
Related Links
An Overview Of Corporate Bankruptcy
See also: Absolute Priority, Bankruptcy, Creditor, Liquidating Dividend, Long, Preferred Stock, Senior Security, Short, Writ of Seizure and Sale
liquidation
The conversion of assets into cash. Just as a company may liquidate an entire subsidiary by selling it to another firm, so too may an investor liquidate by selling a particular type of security.
The paying of a debt.
The selling of assets and the paying of liabilities in anticipation of going out of business.
Case Study If eliminating dividends, laying off employees, selling subsidiaries, restructuring debt, and, finally, reorganization under Chapter 11 bankruptcy fail to resuscitate a business, the likely outcome is liquidation. Early 2001 witnessed the end of the line for Tennessee-based retailer Service Merchandise, a 42-year-old chain of catalog showrooms that proved unable to compete with large discounters such as Wal-Mart. Following a three-year attempt at reorganization under Chapter 11 bankruptcy, the firm announced it would close all 216 stores and liquidate its inventories and real estate. It was expected the asset liquidation would result in creditors being paid only a portion of their claims while stockholders of the company would receive nothing. The firm's stock was trading over the counter for 2¢ per share at the time of the announcement. |
liquidation
discharge of a debt or the determination by agreement or litigation of the amount of a previously unliquidated claim. One important legal meaning is the distribution of the assets of an enterprise among its creditors and proprietors. At the dissolution of a solvent corporation or unincorporated association, the assets are usually liquidated (turned into money) rather than distributed in kind. An insolvent concern, on the other hand, may be liquidated in a receivership (q.v.), in which a court-appointed receiver sells the assets and distributes the proceeds; in general assignments for the benefit of creditors; in bankruptcy; or in the administration of a decedent's estate
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