Question

How might companies liquidate an asset and why? What circumstances would cause an asset to be sold quickly? Is selling the only answer?

Answer 1

A company can run into financial problems and in order to come out of the financial difficulties it can resort to liquidation of assets. In this case, the company can sell it's fixed assets assets to potential acquirers for cash. The company can sell and generate cash out of the deal and then use the cash to make payments to the creditors. Making payments to creditors by liquidating assets as the company is no longer solvent is a term is used in the bankruptcy procedures. When the sales of the business is falling and profits are dissapearing and surviving seems difficult. The business in order to recover the dues of its creditors , needs to sell its fixed assets and make the necessary payments due to he poor cash flow .

In case the company does not sufficient cash to make payments to the creditors then selling is the only answer. The secured creditors will recover their dues from the collateral and the unsecured creditors will recover their dues from liquidation. If the business does not sell its assets , then this can litigations and higher costs for the company which is already in financial distress.