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How are the funds paid out in a company liquidation?

When a company is placed into liquidation, the liquidator has the task of realising the company’s assets and using those funds to pay out the costs of winding up the company. There is an order in which the funds are to be paid out, which is set out in the Corporations Act (Section 556) and is to be strictly followed.

The following costs are to be paid in this order before any ordinary unsecured creditors can receive any funds:

1st – any expenses incurred by the liquidator, including any costs incurred in trading, in obtaining and selling the company’s assets;

2nd – any petitioning creditor’s costs and legal fees (if the company was ordered to be wound up by the Court upon application by a creditor);

3rd- any expenses incurred by a Voluntary Administrator (if the company was placed into Voluntary Administration before being liquidated);

4th- any costs involved in preparing a Report as to Affairs for the company (if the company was wound up by the Court);

5th- any costs incurred whilst preparing a report for the liquidator (if the company was wound up by a resolution of the creditors following a Voluntary Administration);

6th- the costs of any audit (if ASIC so orders it) of the liquidator’s six monthly receipts and payments;

7th- any expenses incurred by the liquidator in winding up the company;

8th- any fees for the services of the liquidator;

9th- any costs incurred by a committee of inspection (if one has been established);

10th- any unpaid employee’s wages and superannuation;

11th – any unpaid personal injury compensation;

12th- any unpaid employee leave of absence payments;

13th- any unpaid redundancy payments to employees;

If, after all of the above have been paid in full, there is not enough money left over to pay 100% of ordinary unsecured creditor claims, then the unsecured creditors will receive a partial dividend on a pro-rata basis.

If you are considering a company liquidation and have concerns about your liabilities being paid in full, call us on 1800 003 883.

We are available 24 hours 7 days a week on for free and confidential advice.

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