We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are the Different Reasons for Liquidation?

By K. Kinsella
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Liquidation occurs when a company or organization closes down, its assets are sold, and proceeds from the sale are distributed to creditors and other individuals or entities with claims on the company. Some liquidations are compulsory, in which case the process occurs as the result of a court order. Other liquidations are voluntary, in which case the people running the organization decide to cease operations. Among the most common reasons for liquidation are bankruptcy, legal problems, or a lack of desire among the people running the entity to keep it operating.

Rules on court ordered liquidations vary around the world, but these proceedings typically can be initiated by the company itself, the shareholders, or its creditors. The party wishing to initiate the process must make a court filing explaining the reason for the liquidation and if the judge approves the request, the firm must cease operations and administrators are normally appointed by the court to oversee the sale of its assets. Court ordered liquidations often happen when people in control of a firm fail to issue stock certificates to shareholders or as a result of a company failing to pay its creditors. The court appointed administrator reviews claims made on the entity's assets and settles claims based on seniority of claims, which usually means creditors are paid ahead of shareholders.

Corporate bankruptcies normally result in liquidations, but laws in many places also require firms that are insolvent but not yet bankrupt to liquidate. Firms are technically insolvent when they lack sufficient income to cover debt obligations. Insurance companies and other financial companies are often subject to compulsory liquidation when insolvent.

Some long established companies are liquidated when changes in the law mean that the business can no longer continue to operate. Firms engaged in activities that are outlawed must cease operations and liquidate in order to avoid prosecution for engaging in unlawful activities. Other companies stop operations and liquidate as a result of changes in the law that make a particular business model obsolete. This often occurs when laws relating to imports, exports, and information sharing change, and companies that were in the business of providing technology to uphold previous in-force laws no longer have a reason to exist.

Voluntary liquidations sometimes occur because shareholders of a failing firm close down a business before it goes bankrupt, but in other situations shareholders or company owners willingly liquidate a firm. If a business was created to provide services for a particular event, the owners of the business usually liquidate it after the event it was created for finishes. In other situations, business owners who wish to retire but cannot find suitable buyers for a firm decide to liquidate the company to raise funds for retirement.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.