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Most businesses are formed and managed with the intent of operating as ongoing entities. The preceding chapters in this guide generally focus on bankruptcy as a mechanism to allow a business with financial difficulties to reorganize so that it can be viable again as a going concern. However, a business can reach a point where the best result for its stakeholders is for the reporting entity to cease operations, liquidate its assets, and settle its obligations, with any remaining resources distributed to its owners. Liquidation may be a voluntary decision based on economic conditions, a defined event for a limited-life entity, or an involuntary act brought about by a reporting entity’s creditors, the Bankruptcy Court or other parties. Although the reasons vary, Figure BLG 6-1 represents the more common causes of liquidation.
Figure BLG 6-1
Reasons for liquidation
Voluntary
Involuntary
Business model can no longer be sustained
Chapter 7 bankruptcy
Purpose of the entity no longer relevant
Other creditor actions
Entity designed to operate for a finite period
Court-ordered liquidation
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