Definition of liquidating

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.

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A broker may forcibly liquidate a trader’s positions if the trader’s portfolio has fallen below the margin requirement or she has demonstrated a reckless approach to risk-taking.

Any cash that remains is then distributed to preferred shareholders, if any, before common shareholders get a cut.

In finance and economics, liquidation is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations as and when they come due. Bankruptcy Code governs liquidation proceedings; solvent companies can also file for Chapter 7, but this is uncommon.

A portfolio comprised of stocks and bonds for an investor whose objective is to purchase a home five years from now, may have these securities liquidated in five years.

The cash proceeds would then be used to make a down payment for a home.