A liquidation policy refers to a plan or procedure that outlines how a company will handle the process of liquidating or converting its assets into cash in the event of closure, bankruptcy or insolvency. This policy is put in place to ensure that the company's assets are sold off in an orderly manner and the proceeds are used to settle its debts to creditors and shareholders. The liquidation policy typically sets out the identification of assets to be sold, the order in which they will be sold, and the prioritization of creditors and shareholders' claims to the proceeds. It is an important aspect of a company's overall risk management strategy as it ensures that the company's assets are used effectively and efficiently even in the worst-case scenario.
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