Liquidate

Liquidate means selling the property on a competitive market. Liquidation refers to a process of closing, or terminating a business, followed by the distribution of the capital of said business between the plaintiffs.

Asset liquidation can be either forced or voluntary. Forced liquidation happens if an organization is forced to turn its assets into liquid form (a.k.a. cash money) as an official result of a lawsuit in court. Voluntary liquidation can happen to get new investments or to terminate old positions. Sometimes, this process refers to when a company gets rid of the inventory, usually by offering discounts to customers. 

Liquidation explained

In investing, liquidation happens if an investment position in an asset is eliminated. Poor performance of assets may be due to partial or even whole liquidation. Liquidation happens when either a portfolio manager or investor needs to restore the balance or re-distribute the funds. Liquidating assets may be useful for those investors who are in need of cash for non-investment obligations. 

One of the main tasks of financial advisors is reassigning assets to a portfolio. Financial advisors also have to consider why would investors want to put their money into a business and for what period of time they would probably do it. For example, if an investor needs to purchase a house in 10 years, they can hold a portfolio of stocks that is going to be liquidated in 10 years. The aggregate cash will then be used to pay a percentage of the cost of a house. 

In business, when a limited company is placed into liquidation, their shareholders and the directors are not personally liable for the debts of the company, unless personally guaranteed, or in some cases where the director has acted blatantly fortunately. 

Margin calls

Sometimes customers may be forced to liquidate holdings by brokers. Usually, it happens because a margin call was not met. If because of the financial losses, the value of a margin account falls, the  margin call (in a form of request) can be made for additional funds. Brokers don’t need the approval of the investor to do so. Thus, they can sell stock holdings without the investor’s approval as well. However, it is the investor who is responsible for the losses during such a process.

Liquidating assets by companies

Asset liquidation in a business is considered to be a part of a bankruptcy procedure. However, businesses have the possibility of liquidating assets even when there are no financial troubles. If the business or a company is unable to pay the debts owed because of the financial troubles and is found to be insolvent, the court might order a compulsory liquidation of the company's assets. The secured creditors usually take over those assets that were pledged as collateral. The cash that remains from the liquidation process is used to pay unsecured creditors. After all creditors are paid, the remaining money is used to pay shareholders. 

The inability of the company to pay creditors is not the only reason for liquidation. Some companies go through a voluntary liquidation if shareholders gradually draw the company to a close. If shareholders believe that the company has achieved its ultimate purpose, they file a petition for its voluntary liquidation. The remaining cash is then distributed between the preferred shareholders.