What occurs when a company's operations end and its assets are distributed among creditors and shareholders?

Liquidation is the process that occurs when a company's operations end and its assets are distributed among creditors and shareholders. During liquidation, the company's assets are sold off to pay its outstanding debts, and any remaining assets are then distributed to shareholders. This typically happens in a structured manner to maximize the value received from the assets. The goal is to settle the financial obligations of the company before it is formally dissolved.

In the context of business operations, liquidation usually follows bankruptcy, where a company is unable to meet its financial obligations and seeks to resolve its debts. Liquidation may occur voluntarily by the company's management or as a result of a court order in bankruptcy proceedings. This process contrasts with other terms such as divestiture, which refers to a company selling off a division or asset rather than winding up operations entirely. Retrenchment refers to cost-cutting measures taken to improve financial health, while bankruptcy is a legal status for an entity unable to repay debts but doesn't specify the distribution of assets.