What Is Liquidating?

The term “liquidate” means converting property or assets into cash or cash equivalents by selling them on the open market. 澳洲幸运5官方开奖结果体彩网:Liquidation similarly refers to the process of bringing a business to an end and distributing its assets tℱo c🌄laimants.

Liquidation of assets may be either voluntary or forced. Voluntary liquidation may be enacted to raise the cash needed for new 澳洲幸运5官方开奖结果体彩网:investments or purchases or to close out old positions. A forced liquidation may be used in 澳洲幸运5官方开奖结果体彩网:bankruptcy procedures, in which an entity chooses or is forced by a legal judgment or contract to turn assets into a liquid form (i.e., cash).

Liquidation can also refer to the process of selling off inventory, usua❀lly at steep discou🙈nts. It is not always necessary to file for bankruptcy to liquidate inventory, as a company may elect to do so to make way for newer items.

Understanding Liquidation

In 澳洲幸运5官方开奖结果体彩网:investing, liquidation occurs when an investor closes their position in an asset. Liquidating an asset is usually carried out when an investor or 澳洲幸运5官方开奖结果体彩网:portfolio manager needs cash to reallocate funds or 澳洲幸运5官方开奖结果体彩网:rebalance a portfolio. An asset that is not performing well may also be partially or fully liquidated. An investor who needs cash for other non-investment obligations—such as paying bills, vacation expen﷽ses, buying 💞a car, covering tuition, etc.—may opt to liquidate their assets.

澳洲幸运5官方开奖结果体彩网:Financial advisors tasked with allocating assets to a portfolio usually consider, among other factors, why someone wants to invest and for how long. An investor who wants to buy a home within five years may hold a 澳洲幸运5官方开奖结果体彩网:portfolio of stocks and bonds designed to be liquidated in five years. The cash proceeds would then be used to make a down payment for a home. The financial advisor would keep that five-year deadline in mind when selecting investments likely to 澳洲幸运5官方开奖结果体彩网:appreciate and protect the capital for the investor.

Margin Calls

Brokers may force certain customers to liquidate holdings in the event of an unmet 澳洲幸运5官方开奖结果体彩网:margin call. This is a request for additional funds that occurs when the value of a 澳洲幸运5官方开奖结果体彩网:margin account falls below a certain threshold required by their broker due to investmentꦍ losses.

If a margin call is not met, a broker may liquidate any open positꦕions to bring the account back up to the minimum value. They may be able to do this without the investor’s approval. This effectively means that the broker has the right to sell any stock holdings, in the requisite amounts, without letting the investor know.

Furthermore, the broker may a♓lso charge an investor a commission on these transaction(s). This investor is held responsible for any losses su𝐆stained during this process.

When Companies Liquidate Assets

While businesses can liquidate assets to free up cash even in the absence of financial hardship, asset liquidation in the business world is mostly done as part of a bankruptcy procedure. When a company fails to repay 澳洲幸运5官方开奖结果体彩网:creditors due to financial hardship, a bankruptcy court may order a 澳洲幸运5官方开奖结果体彩网:compulsory liquidation of assets if the company is found to be 澳洲幸运5官方开奖结果体彩网:insolvent.

The 澳洲幸运5官方开奖结果体彩网:secured creditors would take over the assets that were pledged as 澳洲幸运5官方开奖结果体彩网:collateral before the loan was approved. The 澳洲幸运5官方开奖结果体彩网:unsecured creditors would be paid off with the remaining cash from liquidation. If any funds are left after settling all creditors, the shareholders will be paid according to 澳洲幸运5官方开奖结果体彩网:the proportion of shares that each hoไlds with the insolvent company.

Not all liquidation is the result of insolvency. A company may undergo a voluntary liquidation, which occurs when 澳洲幸运5官方开奖结果体彩网:shareholders elect to wind down the company. The petition for voluntary liquidation is filed by shareholders when it is believed that the company has achieved its goals and purpose. The shareholders appoint a 澳洲幸运5官方开奖结果体彩网:liquidator who dissolves the company by collecting the assets of the solvent c🗹ompany, liquidating the assets, and dist𓆉ributing the proceeds to employees who are owed wages and to creditors in order of priority.

Any cash that remains is then distributed to 澳洲幸运5官方开奖结果体彩网:preferred shareholders before 澳洲幸运5官方开奖结果体彩网:common shareholders get a cut.

The Bottom Line

To liquidate is to sell assets for cash, often quickly. Liquidation may be voluntary to increase one’s cash position or remove risk, or forced such as by a margin call in a bro꧒kerage account or by a bankruptcy judge in the case of insolvency. The word “liquidation” comes from the fact that cash, by definition, is the most liquid asset that exists.

In case a company experiences Chapter 7 bankruptcy, its as✅sets will be liquidated and the company will cease to exist, leaving its shareholders with cents on the dollar, if anything.