In business terminology, what does 'liquidation' refer to?

Liquidation refers to the process of selling a company's assets to repay its debts. This typically occurs when a business is unable to meet its financial obligations or is ceasing operations. During liquidation, all the tangible and intangible assets of the company are evaluated and sold off, and the proceeds are used to settle outstanding liabilities, including debts owed to creditors. Once all debts have been satisfied as much as possible, the remaining assets may be distributed to shareholders, if any.

This process is essential for ensuring that creditors are compensated for the money they are owed when a business cannot continue operating. It also highlights the financial responsibilities businesses have towards their stakeholders, particularly in distress situations where the viability of the company is at stake. Understanding liquidation is important in recognizing the financial challenges that businesses may encounter and the systematic approach required to resolve them.