Generally speaking, an insolvent company that has been placed into liquidation would not be in a position to continue trading. It would simply have its assets realised and the available funds would be distributed as stipulated by the Corporations Act. However, one of the duties of a liquidator is to ensure that the company’s creditors get the best return possible. In some cases, the better decision to achieve this outcome would be to allow the company to continue to trade for a short period of time to prepare the business for sale.
If the liquidator believes that selling the business as a going concern is likely to provide a better return than simply selling off its assets individually, they must confirm this belief with an assessment. Their assessment will also need to take into account the possibility of any trading losses and other significant costs whilst preparing the business for sale and actually selling it. An accurate assessment of the most profitable course of action is absolutely crucial, as the liquidator has a duty of care to both the company and its creditors. The liquidator must act in the best interests of the creditors in order to discharge their obligation. The justification for continuing to trade must consider any losses that could reduce the selling price of the business, and it must stand up to a comparison with the value of the individual assets. If the business needs to continue trading for longer than three months in order to sell it, the liquidator would need to get approval from the Court.
For any questions and advice about your own company and liquidation, feel free to call us at any time on 1800 003 883. We offer free advice 7 days a week.