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What happens when a company becomes insolvent and is in liquidation?

Liquidation is similar to bankruptcy. When a company is liquidated, the Liquidator (also referred to as the Receiver), collects the assets of the company and verifies the liabilities such as claim payments and bills. The Liquidator then develops a plan to distribute the company’s assets according to the law and submits the plan to the Court for approval.

In most cases, an estate will not yield sufficient money to pay claims in full; and most are not able to pay claims in a timely manner. For this reason, FIGA and other state guaranty associations step in (depending on the number of states in which the failed company wrote business) to cover certain claims. The estate’s creditors not covered by the guaranty associations usually receive only partial payment on their claims.