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If there is a surplus after payment of all creditors this is distributed pro rata amongst the ordinary shareholders of the company.

If there are insufficient funds to pay all creditors (INSOLVENCY), preferential creditors are paid first (for example, the INLAND REVENUE for tax due), then ordinary creditors pro rata.

Liquidation often has a negative connotation for this reason.

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Case Study If eliminating dividends, laying off employees, selling subsidiaries, restructuring debt, and, finally, reorganization under Chapter 11 bankruptcy fail to resuscitate a business, the likely outcome is liquidation.