Bankruptcy vs Liquidation

Bankruptcy

Bankruptcy is a financial condition, in which the court declared a person or a company insolvent, resulting in all assets of the company will dispose of to discharge company’s obligations. For example, if ABC Company goes bankrupt, it’s all current and non-current assets will be sold to settle obligations like long term loans, creditor balances and shareholders etc.

Liquidation

Liquidation is an event whereby a company intentionally winds up itself usually due to non-payment of obligations when they come due. The company’s assets are sold to pay or divided among creditors and shareholders according to priority of their claims.

Difference between Bankruptcy and Liquidation

Basis of Difference

Bankruptcy

Liquidation

Meaning It is a state where a company is not able to settle its obligations when they become due. It is a voluntarily process to wind up the company.
Reason Due to non-payment of obligations. A company may liquidate to invest in more profitable company however usually liquidation occurs when the company is financially unstable.
Scope An individual or a company may get into the state. Only companies can liquidate because of legally separate entities.

Conclusion

Both bankruptcy and liquidation halt operations of the company, however, it is not necessary that a company goes liquidate because of bankruptcy or non-payment of obligations. Liquidation may occur due to shareholder’s choice to realize their investment, to invest in a more profitable company and to change the market by rebranding etc.

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