A liquidating dividend is a distribution of cash or other assets to shareholders, with the intent of shutting down the business. This dividend is paid out after all creditor and lender obligations have been settled, so the dividend payout should be one of the last actions taken before the business is closed. Liquidating dividends are usually paid when the owners of a business do not believe that it is generating an adequate return, or that the market is not placing a sufficient sale price on the entire business. Another option is that the owners no longer want to be involved in the management of the business, and so want to shut it down in an orderly manner.
A liquidating dividend is essential a return of the investors' original capital to them, plus or minus any residual retained earnings or losses (respectively) of the business.