Question

QUESTION: In the case of liquidation, common stockholders are paid first, followed by preferred stockholders, followed by bondholders.

ANSWER OPTIONS: True False You need to specifically state IN THE SUBJECT LINE if the answer is TRUE or FALSE.

EXAMPLES OF INADEQUATE RESPONSES: “I think the answer is False.” OR “The correct answer is “C.”

Postings must be no less than 200 words in length to be considered. Any posting less than 200 words in length will not be reviewed.

Answer 1

FALSE.

In the case of liquidation first liability of liquidation expenses and thereafter creditors and unsecured loan have to paid. And in last common stockholders are paid. So the given statement is not correct.

In liquidation expense includes liquidator remunaration which paid first at the time of liquidation. From balacne ammount secured loans from bankers and other lenders are paid. Thereafter arrearsof salary of employees & staff are paid. after that unsecured creditors and preferential creditors of organization are paid. And balance ammount will contribute to first preference shareholder and after that to equity shareholder.

In case of more then one party are create charge on fixed assets then propotianate payment will done to secured creditors.

In brief payment is done in following ranked system:

1. Liquidation Expenses

2. Secured Creditors

3. Preferential Creditors.

4. Shareholders