Legal Definitions - one-month liquidation

Definition: One-month liquidation is a process of converting a company's assets into cash to settle debts within a month. It is a special election available to certain shareholders that determines how the distributions received in liquidation by electing shareholders will be treated for federal income-tax purposes.

Examples:

• A corporation decides to liquidate its assets and settle its debts within a month. The shareholders who qualify for the election can choose how the distributions received in liquidation will be treated for federal income-tax purposes.
• A company partially liquidates its assets by distributing some corporate assets to shareholders on a pro-rata basis and continues to operate in a restricted form.
• A company adopts a liquidation plan to complete liquidation within 12 months, subject to a tax law prohibiting the company from recognizing any gains or losses on property sold within that time frame.
• A debtor goes through the process of liquidation under Chapter 7 of the Bankruptcy Code, where the nonexempt property is collected, converted to cash, and distributed to creditors to settle debts.

The examples illustrate the different types of liquidation processes that a company or debtor can go through to settle debts. One-month liquidation is a special election available to certain shareholders, while partial liquidation does not completely dispose of a company's assets. Twelve-month liquidation occurs within 12 months from adoption of the liquidation plan to complete liquidation, and bankruptcy liquidation is a process of collecting a debtor's nonexempt property to settle debts.