Steps in Liquidation
- 1). Appoint a liquidator. The liquidator is usually appointed by the shareholders in a voluntary liquidation or the judge in a compulsory liquidation. This person represents the creditors and investors of the company being liquidated.
- 2). Take an inventory of items to be sold. These are the items to be sold in auction or to the public in exchange for cash. Determine a reserve price for all items.
- 3). Discharge or pay off all liabilities and creditors. Creditors have different priority claims on assets. Bondholders are always paid off before stockholders, and banks are usually paid off before bondholders. It depends on the creditor contract.
- 4). Distribute funds left over after paying liabilities to investors and stockholders. At this point, the company is formally dissolved.