Liquidation is the process of closing down a business and halting operations due to insolvency. Often when a company is insolvent -- meaning it cannot pay its debts -- it is most prudent for the company to sell off its remaining assets in order to pay back creditors to the best of its ability. And, while the business no longer exists, the business debts still do exist. But, because there is no longer a debtor, the debt must be written off by the creditor.
The liquidation process is governed by Chapter 7 of the U.S. Bankruptcy Code. (Chapter 11, on the other hand, is a process that includes salvaging a bankrupt company and restructuring debts.)
There is a very specific order governing the priority of claims, and CMBG Advisors, acting as a trustee, is able oversee this process.
As a company enters insolvency, delineations are drawn between different types of creditors. A secured creditor is one who has a lien on specific property of the debtor. The lien gives the creditor a legal right to take the asset if the debtor is delinquent on its payments to the creditor. Upon a liquidation, secured creditors have priority claims on collection of debts. Unsecured creditors are the most common. These are creditors who have no interest in a debtor’s specific piece of property. General unsecured creditors are typically entitled to a share in the debtor’s liquidated estate, after secured creditors and close-out costs have been paid.