Companies often use chapter 11 to liquidate their assets because management remains in place during the bankruptcy process.
Some argue that this results in a more orderly liquidation that increases the ultimate return to creditors.
Most often, these sales are administered by an "agent" hired by the debtor that guarantees the estate a certain percentage of the cost value of the debtor's inventory, with a higher recovery possible depending upon the ultimate results of the sales.
Several companies may bid at auction for the right to be the debtor's GOB agent.
Many recently filed chapter 11 cases, which presumably began as intended reorganizations, have become going-out-of-business liquidations shortly after filing.
Famous retail brands such as Circuit City, Whitehall Jewelers, Linens 'n Things, Friedman's Inc., The Sharper Image, Boscov's, Mervyn's, Steve & Barry's and Bombay Company have all recently liquidated in bankruptcy.
By the time a company files for bankruptcy relief, it is often unable to operate using "cash collateral" and must rely upon financing to complete the bankruptcy process.
Where such financing is available, it is often subject to shortened terms, high fees and high rates of interest.
Most of these retailers began the bankruptcy process with the hope of reorganizing or selling some stores as going concerns, but were quickly forced to liquidate.
In retail bankruptcy cases, liquidations are typically accompanied by going-out-of-business (GOB) sales.