Question

When the business fails and assets are being divided, who receives first preference? Please explain?

Answer 1

When the business fails and assets are being divided as follows -

1. Secured Creditors

2. Unsecured Creditors, Including employees who owed money.

3. Stockholders

Liquidation -

When company donen't perform well and liquidation was the last option to save the opportunity cost of the fund to be used elsewhere to earn more profit.

In such a situation company may opt to liquidate the company's assets.

In such a situation company use the proceeds to pay the secured creditors first. Then after completing the secured creditors company pay the unsecured creditors.

Liquidation is the process of shutdown the company.