Is it legal to buy a closed company's domain name?

This is the example:

1. Company A closes down/shuts down.

2. Company A's domain name expires and is for sale.

3. Company B wants that domain and buys it.

4. Company B then forwards that domain to their main site.

The main question: If Company A went out of business, is anything mentioned above illegal/grounds for litigation, etc.? Note, both companies sell roughly the same product.

Yes it is. In fact, some guy bought the domain name for the "George W Bush Presidential Library" for $5 when it expired, and just sold it for $35k.

EDIT: To answer the main question, nothing mentioned above is grounds for litigation because the company is out of business, and therefore, no longer has any basis with witch to sue. In fact, if you ask me, this is an absolutely genius marketing idea.

I'm not sure... companies are perpetual identities, so if the company still owns the domain, even if they are no longer selling products, I would assume you cannot use it until it expires.

You can buy any expired domain name you want.

Sure. But who are you going to buy it from?