1. The act of determining by agreement or by litigation the exact amount of something (as a debt or damages) that before was uncertain.
2. The act of settling a debt by payment or other satisfaction.
3. The act or process of converting assets into cash, esp. to settle debts.
one-month liquidation. A special election, available to certain shareholders, that determines how the distributions received in liquidation by electing shareholders will be treated for federal income-tax purposes. • To qualify for the election, the corporation must be completely liquidated within one month. IRC § 333.
partial liquidation. A liquidation that does not completely dispose of a company’s assets; esp., a liquidation occurring when some corporate assets are distributed to shareholders (usu. on a pro rata basis) and the corporation continues to operate in a restricted form. [Cases: Internal Revenue 3820. C.J.S. Internal Revenue §§ 398–399, 402.]
twelve-month liquidation. A liquidation occurring within 12 months from adoption of the liquidation plan to complete liquidation, subject to a tax law prohibiting the company from recognizing any gains or losses on property sold within that time frame. • Generally, inventory will not be included unless a bulk sale occurs. IRC § 337. [Cases: Internal Revenue 3698, 3711. C.J.S. Internal Revenue §§ 400, 403.]
4. Bankruptcy. The process — under Chapter 7 of the Bankruptcy Code — of collecting a debtor’s nonexempt property, converting that property to cash, and distributing the cash to the various creditors. • Upon liquidation, the debtor hopes to obtain a discharge, which releases the debtor from any further personal liability for prebankruptcy debts. See CHAPTER7. Cf. REHABILITATION (3). [Cases: Bankruptcy 2251. C.J.S. Bankruptcy § 50.]
