Liquidation value (orderly and forced)
What is liquidation value, and how does it differ from forced-sale value?
ONE OF 366 TERMS · FREE · NO SIGNUP
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Liquidation value is what a business's assets would realise, net of selling costs, if it stopped trading and the assets were sold off rather than the business sold as a going concern. Valuers of stock and plant often give two figures: an orderly liquidation value, allowing reasonable time to find buyers, and a forced liquidation value, assuming a quick sale. A lender uses it as a floor under its recovery, and in a restructuring it is often the benchmark creditors measure an offer against: a proposal paying less than a liquidation would is hard to win votes for.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WHAT IT IS NOT
Forced-sale value is the price of a particular asset sold quickly under pressure; liquidation value covers the whole asset base of a business that has stopped trading, and comes in orderly and forced versions.
// WORKED IN
// NEXT TO IT
- Personal guarantee release
- General security agreement (GSA)
- Subordination
- Intercreditor agreement
- Loan to value ratio (LVR)
- Forced-sale value
- PPSR (Personal Property Securities Register)
- Retention of title
- Purchase money security interest (PMSI)
- Preferential creditors
- Letter of comfort
- Cross-guarantee
- Floating charge
- Structural subordination
- Recovery waterfall
- First mortgage
- Pari passu
- Loan to security ratio (LSR)
- Lending value
- All-monies clause
- Valuation reliance letter
- Solicitor's undertaking
- Loss payee (bank's interest noted)
- Water entitlements (as security)
- Livestock as security
- Specific security agreement (SSA)
- Debenture (security document)
- Share pledge (share charge)
- Step-in rights
- Third-party mortgage
- Limited guarantee
- Upstream guarantee
- Corporate benefit
- Financial assistance (whitewash)
- Deed of priority
- Perfection (security interest)
- Title insurance
- Payout figure (redemption statement)
- Independent legal advice certificate
- Panel valuer
- Desktop valuation
- Partial release (of security)
- Security trustee (security agent)
- Cash cover (cash-collateralised facility)
- Back-to-back loan
// SUBSCRIBE
The Lab.
One case file and one question, in your inbox every Tuesday morning, New Zealand time. The senior banker's read opens only after you answer.
FREE WITH IT · THREE PDFS
An interview case, an annotated credit paper, and a one-page loan application sheet.
No spam. Unsubscribe anytime. Educational content only.