Legal Definitions - distribution in liquidation

A distribution in liquidation occurs when a business entity (like a corporation or partnership) or an estate is formally dissolved and wound up. It refers to the process of distributing the remaining assets—whether cash, property, or other valuables—to the owners (shareholders, partners) or beneficiaries, after all debts, taxes, and other obligations have been fully paid off.

• Example 1: Corporate Shutdown

  A small manufacturing company, "Precision Parts Inc.," decides to cease operations due to declining market demand. The company sells its factory building, machinery, and inventory. After using the proceeds to pay off its bank loans, outstanding supplier invoices, and employee severance packages, a significant amount of cash remains. The board of directors then authorizes a distribution in liquidation, where this remaining cash is divided proportionally and paid out to all shareholders based on the number of shares they own.

  Explanation: This illustrates a distribution in liquidation because Precision Parts Inc. is formally dissolving, and the remaining cash, after all corporate debts are settled, is being distributed to its shareholders, who are the owners of the company.

• Example 2: Partnership Dissolution

  Two architects, Maria and David, decide to dissolve their architectural firm, "Blueprint Designs LLP," after 20 years of successful collaboration, as Maria is moving to another country. They sell their office building, design software licenses, and client contracts. After paying off their business line of credit, outstanding utility bills, and any taxes, they are left with a valuable collection of antique drafting tools and a substantial amount of cash. They agree to take these remaining assets as a distribution in liquidation, dividing them according to their partnership agreement.

  Explanation: Here, the dissolution of Blueprint Designs LLP leads to a distribution in liquidation as the remaining physical assets (drafting tools) and cash, after all business debts are settled, are divided and given to the partners who owned the firm.

• Example 3: Estate Settlement

  Upon Ms. Eleanor Vance's passing, her will instructs her executor to liquidate her entire estate and distribute the proceeds among her three grandchildren. The executor sells Ms. Vance's house, her extensive art collection, and her investment portfolio. After paying off her outstanding medical bills, funeral expenses, and any inheritance taxes, the executor consolidates the remaining funds and assets. These remaining funds and assets are then divided equally and given to her grandchildren as a distribution in liquidation of her estate.

  Explanation: This example demonstrates a distribution in liquidation because the executor is winding up Ms. Vance's estate, and after all debts and expenses are paid, the remaining assets are distributed to the beneficiaries (her grandchildren) as specified in her will.