Wind-down
Also known as: Liquidation, Administration, Insolvency
The business stops and the assets are sold for whatever they fetch. It is the alternative every restructuring is measured against.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat actually happens?
Sometimes there is nothing to save. The business does not make money, no plan makes it make money, and no amount of adjusting the debt changes that. What is left is to stop, sell whatever can be sold, and share out the proceeds.
Control passes from the directors to an insolvency practitioner, whose job is to get as much as possible for the creditors as a whole rather than for any one of them.
The money is then paid out in a strict order fixed by law. The costs of the process first. Then certain protected claims, usually including employees. Then creditors who hold security, out of whatever they hold security over. Then everybody else. Then, if anything is left, the shareholders.
It almost never gets that far. Assets sold under pressure fetch a fraction of what they were worth in a working business, and the money usually runs out somewhere among the ordinary creditors — the suppliers, the customers with deposits, the bondholders without security.
- 1
Decisiondays–wks
Directors conclude there is no reasonable prospect of continuing, a judgement with personal consequences if made too late.
- 2
Appointment1 day
An insolvency practitioner takes control of the company from its directors.
- 3
Realisation6–24 mths
Assets are sold, contracts are terminated and claims are pursued, usually for far less than book value.
- 4
Adjudicating claims3–12 mths
Every creditor's claim is examined and admitted or rejected.
- 5
Distributionwks
What is left is paid out strictly in order of priority, and it usually stops long before the unsecured creditors.
When to stop trading — The directors decides. Continuing to trade when there is no reasonable prospect of avoiding insolvency carries personal liability in many jurisdictions.
The priority waterfall — Statute decides. Costs, then preferential claims, then secured, then unsecured, then shareholders — and it is a rare liquidation that reaches the last two.
Who is on the deal
| Who | Side | What they are actually for |
|---|---|---|
| The insolvency practitioner | Neither | Takes control from the directors and owes duties to creditors as a whole. |
| Secured creditors | Buy side | Are paid from their collateral first, and frequently that is where the money stops. |
| Preferential creditors | Buy side | Employees and certain tax claims, which statute puts ahead of ordinary creditors. |
| Unsecured creditors | Sell side | Suppliers, customers and bondholders without security, who usually receive very little. |
| The directors | Neither | Face questions about when they should have stopped trading, which carries personal liability in many jurisdictions. |
- Desk
- Restructuring
- Who takes control
- An insolvency practitioner, from the directors
- Assets realise
- Usually far less than book value
- Distribution
- Strictly in statutory order
- Unsecured creditors
- Rarely receive much, and often nothing
What decides whether it completes
Not how hard this is, and not a rating — there is deliberately no total. It says which of five blockers decides whether this transaction happens at all, in the same order on all 70 transaction types so they can be compared. This publication's own reading; see the notice below.
- Pricedecides it
- Financingmatters
- Approvalmatters
- Diligencebarely applies
- Executiondecides it
What decides it here. Nothing is being negotiated: assets are sold for whatever they fetch and the proceeds are distributed in statutory order. What decides the outcome is how much value has already leaked away during the months before anybody accepted that this was where it was going.
3 · IntermediateHow it runs in practice
Why the numbers collapse
- A going concern is worth more than its parts. Customer relationships, trained staff, contracts and reputation have value together and almost none separately.
- Everybody knows you have to sell. A forced seller in a known timeframe does not get a good price.
- Specialised assets have few buyers, and the ones who exist know it.
- The process costs money, and it comes off the top before anybody is paid.
The order of payment
The precise order differs by jurisdiction and the shape is common: costs of the process, then preferential claims such as employee wages and certain taxes, then creditors with fixed security out of their collateral, then creditors with floating security, then unsecured creditors, then shareholders.
Each level is paid in full before the next receives anything. That is why where a creditor sits matters more than how much it is owed — the single most important idea on this desk, and this is where it is at its most visible.
Selling the business rather than the assets
A practitioner will usually try to sell the business as a going concern first, sometimes very quickly and sometimes to a buyer arranged before the appointment. That produces more for creditors than a piecemeal sale, and where the buyer is connected to the previous owners it attracts serious criticism — which is why such sales carry disclosure requirements.
When directors must stop
Continuing to trade when there is no reasonable prospect of avoiding insolvency carries personal liability for directors in many jurisdictions. That rule shapes behaviour enormously: it is the reason boards take formal advice early, and the reason some companies file when their management would rather keep trying.
4 · AdvancedThe numbers & the documents
The relevant alternative, which is why this page exists
In a restructuring plan, the court asks whether any creditor is worse off than in the relevant alternative. In a court-supervised reorganisation, a plan must satisfy a best-interests test against liquidation. In an out-of-court negotiation, every party is implicitly comparing the offer to what it would get if the talks failed.
All three are the same question, and the answer is a liquidation analysis. Understanding how little assets realise in a wind-down is therefore not a specialist interest — it is what makes every other transaction on this desk intelligible.
Why recovery estimates are so wide
A liquidation analysis requires estimating what unspecific assets will fetch from unknown buyers under time pressure, net of costs nobody can size in advance. Two honest experts can differ by a factor of two. And since that number sets the floor for every negotiation, the gap between their estimates is the space in which the whole restructuring is argued.
Where value went before anybody accepted this
The largest determinant of what creditors receive is rarely the sale process. It is how much value leaked away during the months when the company was still hoping — customers who left, staff who resigned, suppliers who tightened terms, and management attention consumed by the crisis. By the time a practitioner is appointed, most of the destruction has already happened.
That is the strongest argument for acting early, and it is the hardest advice for a board to accept.
What it means on the other half of the site
Recovery is what the credit market prices every day. A bond trading at forty is a market estimate of what this process would produce; a credit default swap settles on exactly it. See credit, where the number this desk determines is quoted continuously by people who hope never to find out whether it was right.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.
5 · Desk notesHow people on the deal think about it
Now say it back
Close the page and give Wind-down in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.
- Who wants what — name both sides and what each one is actually trying to get.
- What has to happen, in order — the three or four stages, not the whole timetable.
- Where the money comes from — cash, new shares, or borrowed; somebody has to fund it.
- What kills it — the ordinary way, not the dramatic one.
Where this transaction shows up elsewhere
- EasyCourt-supervised reorganisationDealA company files for protection and keeps running
- EasyStandstillDealCreditors agree not to enforce while a plan is negotiated
- MediumRescue financingDealNew money lent to a company already in difficulty, with priority over almost everybody
- HardRestructuring planDealThe court procedure that delivers a takeover, applied to creditors