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How does a company get put into Liquidation?

A company liquidation involves appointing a liquidator to wind up a company’s affairs. The first step in a liquidation is to ascertain and then realise (sell) any company assets. Any funds that become available from the sale of the assets will be distributed according to the order set out by the Australian Corporations Act. When all assets have been sold and reported on, and the company’s creditors have received as much as possible, the company is legally wound up and deregistered.

There are two ways a company can be placed into liquidation: voluntarily, or involuntarily.

Creditor’s Voluntary Liquidation

The directors and shareholders of a company can decide to voluntarily appoint a liquidator to wind up the company. To begin this process, the directors must hold a “meeting of the board of directors”. If the majority of the directors agree that the company should be liquidated, the board must choose a liquidator and then get the shareholders involved in the decision. The directors then need to call a meeting of the members (shareholders) and if 75% of the shareholders present at the meeting approve of the liquidation the vote will pass and the liquidator gets appointed immediately.

If a company is liquidated voluntarily the directors and shareholders can appoint a liquidator of their own choosing (although it is possible for the company’s creditors to replace this liquidator with another when the first creditor’s meeting occurs). A voluntary liquidation is the fastest and most cost-effective method for winding up a company.

Court Liquidation (or Compulsory Winding Up)

A company liquidation is involuntary when it is forced upon it by the company’s creditors. Any creditor who is owed more than $2,000 can issue a Statutory Demand if they do not receive payment. If the debt remains unpaid after 21 days that creditor can then apply to the Court to have the company liquidated, as the company will be seen to be insolvent.

When an application has been made by a creditor to have the company wound up, the directors no longer have the option of doing it voluntarily. They will also be unable to appoint a liquidator of their choosing; as it will be in the hands of the petitioning creditor (the one who made the application to court) to choose a liquidator. A company can voluntarily liquidate before the 21 day time period is up, though, so if you do receive a Statutory Demand that the company cannot pay, you might want to consider taking the step yourself and appointing a liquidator of your own choosing.

For 24/7 advice on voluntarily placing your company into liquidation, call us on 1800 003 883.

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