Liquidating

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.

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Liquidation in finance and economics, is the process of bringing a business to an end and distributing its assets to claimants. Solvent companies may also file for Chapter 7, but this is uncommon.

It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they come due. Not all bankruptcies involve liquidation; Chapter 11, for example, involves rehabilitating the bankrupt company and restructuring its debts.

It is not necessary to file for bankruptcy to liquidate inventory.

Liquidation can also refer to the act of exiting a securities position.

The debt will remain until the statute of limitation has expired, and as there is no longer a debtor to pay what is owed, the debt must be written off by the creditor.

Assets are distributed based on the priority of various parties’ claims, with a trustee appointed by the Department of Justice overseeing the process.

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.

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.

As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims. The business is no longer in existence once the liquidation process is complete.

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