Liquidation is the process of non-cash assets to cash.

It should also be fair and equitable to

protect the rights of creditors and partners.
Loss if proceeds > the actual value of assets
Gain if proceeds < the actual value of assets
You should pay the creditors first and classify whether it is secured, partially secured, or not
secured.
Security - creditor lends money → obtains collateral (you can’t borrow money if there’s no
collateral)
Partial Security – collateral is lesser and there’s a chance to not be paid
You should also know the difference of partner’s obligation and partnership. Personal creditors
must be paid first before the partnership.
Methods of Liquidation
Lump Sum Liquidation
- All non-cash assets are converted into cash all at once and payment to the partners are
made only once.
- Creditors and partners are paid in full.
Installment Liquidation
- Cash is given to partners upon sell of a non-cash asset.
- It depends on the amount of converted assets.
- If there’s more assets enough to pay obligations, then it is possible to not give first to the
creditors as long as it is approved.