when companies liquidate assets
while businesses can liquidate assets to free up cash even in the absence of financial hardship asset liquidation in the business world is mostly done as part of a bankruptcy procedure when a company fails to repay creditors due to financial hardship a bankruptcy court may order a compulsory liquidation of assets if the company is found to be insolvent the secured creditors would take over the assets that were pledged as collateral before the loan was approved the unsecured creditors would be paid off with the remaining cash from liquidation if any funds are left after settling all creditors the shareholders will be paid according to the proportion of shares that each holds with the insolvent company not all liquidation is the result of insolvency a company may undergo a voluntary liquidation which occurs when shareholders elect to wind down the company the petition for voluntary liquidation is filed by shareholders when it is believed that the company has achieved its goals and purpose the shareholders appoint a liquidator who dissolves the company by collecting the assets of the solvent company liquidating the assets and distributing the proceeds to employees who are owed wages and to creditors in order of priority any cash that remains is then distributed to preferred shareholders before common shareholders get a cut chapter 7 of the u s bankruptcy code governs liquidation proceedings solvent companies may also file for chapter 7 but this is uncommon 