Which term means selling business assets to pay debts?

• A. Liquidation
• B. Bankruptcy
• C. Voluntary Administration
• D. Involuntary Cessation

Answer: (A)

Liquidation is the process of winding up a business by turning its assets into cash to repay creditors. When a company can’t meet its debts, assets are sold off to raise cash and the proceeds are distributed to creditors in a defined order, after which the company ceases to exist. It can be started voluntarily by the owners or forced by a court.

This differs from bankruptcy, which mainly refers to individuals facing inability to pay debts, and from voluntary administration, which focuses on restructuring the business to try to continue trading rather than immediately selling off assets. Involuntary cessation is simply stopping operations, not the formal process of selling assets to pay debts.