Liquidation

Liquidation refers to the procedure through which a company that is no longer able to continue its operations—often because it cannot meet its financial obligations—is wound up. During this process, the business ceases its activities, its assets are converted into cash, and the proceeds are distributed to creditors according to statutory priority rules. After the assets have been realised and liabilities addressed, the company is dissolved and its name is struck off the official register.

Illustration:

For example, suppose a manufacturing firm falls behind on payments owed to its lenders and suppliers. To satisfy these obligations, the firm may sell its machinery, stock, and premises. The funds generated are then applied toward outstanding debts, and once the process is completed, the business is formally dissolved.