Bankruptcy of a corporation is a legal procedure made to assist companies that are unable to completely pay outstanding debts incurred, while repaying creditors from the available assets. When bankruptcy occurs corporations are able to seek various avenues in order to relieve themselves from debt. The United States Code (U.S.C.) contains five chapters of debt relief. Chapter 7, Title 11, of the U.S.C. specifically deals with liquidation proceedings. Liquidation is: “(1) In regard to bankruptcy, the sale of the nonexempt assets of a debtor and the distribution of the proceeds to the debtor’s creditors. Chapter 7 of the Bankruptcy Code provides for liquidation bankruptcy proceedings. (2) In regard to corporations, the process by which corporate assets are converted into cash and distributed among creditors and shareholders according to specific rules of preference.” In cases where corporations seek debt relief they may propose to completely liquidate or partially liquidate their existing assets. During a liquidation proceeding the assets of a corporation are handed over to a trustee. The assets that are nonexempt are then distributed by the trustee and the proceeds are given to the creditors. In this paper I will specifically address partial liquidation. Partial liquidation occurs when a corporation cancels or redeems all or part of the company’s stock through a series of distributions. Partial liquidation of a company includes liquidating its assets or operations through subsidiary spin-offs or the sale of a segment of the business. For liquidation to be considered partial it must meet certain criteria: (1) redemption of a portion of a company’s stock must occur (2) a distribution of proceeds or actual assets (3) partial liquidation involving subsidiaries. For partial liquidation to be considered a distribution it: (1) is not essentially equivalent to a dividend and (2) is both pursuant to a plan and made within the plan year or within the...
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