If there is a surplus after payment of all creditors, this is distributed pro rata amongst the shareholders of the company. As investment funds continue to face challenges in meeting performance benchmarks and as investors become less tolerant of paying management fees for underperformance, many fund managers are determining that liquidating their funds is the best course of action.As a result, questions concerning the implementation of the Financial Accounting Standards Board (FASB)accounting and financial reporting guidance on adopting the liquidation basis of accounting are becoming more frequent.
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.
Any transaction that offsets or closes out a long or short position. Liquidation also refers to a situation in which a company ceases operations and sells as many assets as it can; the company uses the cash to repay debt and, if possible, shareholders.
Liquidation often has a negative connotation for this reason. 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.
You’ll just want to be careful if that particular fund is part of a hedging strategy, which means it will no longer be working in your favor.
Fortunately, there are now more ETF choices than ever to replace closed funds, and one of the best places to look for an alternative fund is our comprehensive lists of different types of ETFs.