liquidation (redirected from Winding-up)

Liquidation

1. When a business or firm is terminated or bankrupt, its assets are sold and the proceeds pay creditors. Any leftovers are distributed to shareholders.

2. Any transaction that offsets or closes out a long or short position.

Notes:

Creditors liquidate assets to try and get as much of the money owed to them as possible. They have first priority to whatever is sold off. After creditors are paid, the shareholders get whatever is left with preferred shareholders having preference over common shareholders.

See also: Absolute Priority, Bankruptcy, Creditor, Liquidating Dividend, Long, Preferred Stock, Senior Security, Short, Writ of Seizure and Sale

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Liquidation

Occurs when a firm's business is terminated. Assets are sold, proceeds are used to pay creditors, and any leftovers are distributed to shareholders. Any transaction that offsets or closes out a long or short position. Related: Buy in, evening up, offset liquidity.

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liquidation

1. The conversion of assets into cash. Just as a company may liquidate an entire subsidiary by selling it to another firm, so too may an investor liquidate by selling a particular type of security.

2. The paying of a debt.

3. The selling of assets and the paying of liabilities in anticipation of going out of business.

Case Study If eliminating dividends, laying off employees, selling subsidiaries, restructuring debt, and, finally, reorganization under Chapter 11 bankruptcy fail to resuscitate a business, the likely outcome is liquidation. 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. 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.