What does liquidation mean?

Liquidation in finance refers to the process of selling off all the assets of a business in order to pay off its debts and close down operations. This can occur when a company is facing financial insolvency and is unable to meet its financial obligations. The goal of liquidation is to maximize the value of the company's assets and distribute the proceeds to its creditors. Liquidation can be voluntary, where the company's management decides to wind down the business, or it can be involuntary, where the company is forced into liquidation by its creditors or a court order. During the liquidation process, a liquidator is appointed to oversee the sale of the company's assets and the distribution of the proceeds to creditors according to a predetermined priority of claims. This may involve selling off inventory, equipment, real estate, and other assets in order to raise the necessary funds to pay off debts. Once all the assets have been sold and the creditors have been paid, any remaining funds are distributed to the company's shareholders. In some cases, the shareholders may not receive anything if the company's liabilities exceed its assets. Overall, liquidation is a last resort for a struggling business and is often a sign of financial distress or failure. It is a complex and often lengthy process that requires careful management to ensure that all stakeholders are treated fairly and that the maximum value is realized from the company's assets.