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).To liquidate is to convert stocks or goods into cash by selling them, to finish business neatly, and to clear debts.If you liquidate your old baseball card collection, you will have money to put in your college fund.Assets are distributed based on the priority of various parties’ claims, with a trustee appointed by the Department of Justice overseeing the process.
When a company fails to repay its creditors due to financial hardship and prolonged losses in its operations, a bankruptcy court may order a compulsory liquidation of the business assets if the company is found to be insolvent.
An individual may also decide to liquidate assets, such as house and land for cash.
The cash could then be used to boost his or retirement nest egg or pay off creditors.
Liquidation can also refer to the act of exiting a securities position.
In the simplest terms, this means selling the position for cash; another approach is to take an equal but opposite position in the same security – for example, by shorting the same number of shares that make up a long position in a stock.