Bankliquidation is the process of liquidating a bank‘s assets in order to pay off its creditors and depositors. The process is typically initiated when a bank is undercapitalized or insolvent, and is carried out by an appointed bank liquidator. During the process, the bank liquidator evaluates the bank‘s assets and liabilities, and sells off assets such as loans, real estate, and securities to repay creditors and depositors. The liquidator is also responsible for collecting the bank‘s outstanding debts, resolving any legal disputes, and distributing the remaining assets to shareholders.
A bank must be liquidated when it is unable to meet its financial obligations or when it is failing to comply with banking regulations. This can be due to a variety of factors, including insufficient capital, inadequate management, or fraud. In some cases, a bank may also be liquidated if it is unable to pay its depositors or is seen as a threat to the overall banking system.
In a bank liquidation, a creditor and insolvency hierarchy determines which creditors will be paid first. This hierarchy is based on the types of claims creditors have against the debtor and the priority they are given when the assets of the debtor are liquidated. Generally, secured creditors will be paid first, followed by unsecured creditors and then equity holders. Secured creditors are those creditors who have a lien or security interest against the debtor‘s assets and are typically paid first. Unsecured creditors are creditors who do not have a lien or security interest against the debtor‘s assets and are usually paid after secured creditors. Equity holders are the last to be paid as they are the owners of the company and have no legal claim against the assets of the debtor.