Legal Definitions - twelve-month liquidation

Definition: Twelve-month liquidation refers to the process of converting a company's assets into cash within 12 months to settle debts. This process can occur through a special election, partial liquidation, or bankruptcy.

Examples:

• One-month liquidation: This is a special election available to certain shareholders that determines how distributions received in liquidation will be treated for federal income-tax purposes. To qualify for the election, the corporation must be completely liquidated within one month.
• Partial liquidation: This type of liquidation does not completely dispose of a company's assets. Instead, some corporate assets are distributed to shareholders on a pro rata basis, and the corporation continues to operate in a restricted form.
• Bankruptcy: Under Chapter 7 of the Bankruptcy Code, a debtor's nonexempt property is collected, converted to cash, and distributed to creditors. The debtor hopes to obtain a discharge, which releases them from any further personal liability for prebankruptcy debts.

These examples illustrate the different ways in which a company can undergo a twelve-month liquidation. Whether through a special election, partial liquidation, or bankruptcy, the goal is to convert assets into cash to settle debts within a 12-month timeframe.