Insolvent liquidation refers to the legal process of dissolving a company that is unable to pay its debts due to bankruptcy and distributing its remaining assets to creditors.
Key Features:
- Initiated via court or regulatory order once insolvency is proven
- An insolvency practitioner is appointed as liquidator
- Assets are sold, contracts terminated, and proceeds used to repay secured creditors
- Remaining funds distributed based on priority amongst unsecured creditors
- Company is dissolved and delisted after the process is complete
Example:
A construction firm facing debts of $5 million amid a downturn went into insolvent liquidation, with the liquidator recovering $2 million through asset sales to pay debts in order of priority.
Key Takeaways:
Insolvent liquidation provides an orderly mechanism to wind down an unviable company’s affairs, obtain value from salvageable assets, and equitably settle obligations based on creditor seniority within legal protections.