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The Basics of Company Liquidation

The term “liquidation” refers to the legal dissolution of a company that is insolvent, which means that it does not have enough in the way of assets to pay all of its creditors in full. You would only need a liquidation for a Pty Limited or Limited company – if you are running a business, either as a sole trader or in a partnership, the business debts would essentially be in your own name/s, and so you would have to consider options that cover personal debts if you found yourself insolvent (for example: a Debt Agreement, Personal Insolvency Agreement or Bankruptcy). When people talk about “winding up” or “dissolving” a company, they are talking about liquidation.

Who can liquidate my company?

The procedures for a company liquidation, as set out in the Australian Corporations Act, are very strict, and as such a liquidation can only be handled by a Registered Liquidator who is licensed by the Australian Securities and Investments Commission (ASIC). Once appointed, the liquidator is the only one authorised to deal with the company’s affairs – the company directors will no longer have any power.

What happens during the liquidation?

The goal is for the company’s available funds to be distributed in a fair and orderly manner. The liquidator is responsible for selling the company’s assets and distributing the proceeds in the prescribed manner. The costs and expenses of the liquidator are paid first, after which any excess funds (if available) are paid to the company’s priority creditors (which includes claims made by employees), and then any ordinary unsecured creditor claims. Quite often there will be not be enough money to pay the priority creditors and ordinary creditors in full, in which case they would receive a dividend on a pro-rata basis.

The liquidator will also investigate the company’s affairs and ensure that all of its actions were legitimate and fair, in particular, payments to its creditors. If there is evidence that any creditor received a payment that was in preference to the other creditors, the liquidator can apply to the Court to have that transaction reversed so that the funds can be distributed fairly. This also applies if it is found that a director entered into an uncommercial or unfair director related transaction.

Who appoints the liquidator?

There are two ways in which a liquidator can be appointed to dissolve a company.

The first is a Creditors Voluntary Liquidation (CVL), and it occurs when the directors and shareholders make the decision to have the company wound up. By actively taking that step, a Registered Liquidator of their own choosing can be appointed.

The second way is via a Court Order. A company director or shareholder, or one of the company’s creditors, can make the application for the order. If it is a creditor that makes the application, the company will not have any control over who gets appointed as the liquidator and the creditor will generally choose an Official Liquidator themselves.

Why would I voluntarily appoint a liquidator?

If the company is insolvent and unable to pay all of its creditors in full, it should be immediately placed into voluntary liquidation by the company directors. If the directors delay they could become guilty of insolvent trading which has serious implications for the directors. One might also choose to appoint a liquidator when there are serious disputes between directors and/or shareholders that are likely to adversely affect the company’s ability to continue trading (this is known as a Provisional Liquidation).

If the company is not insolvent but the directors wish for it to be deregistered, a liquidator can be appointed to oversee a “solvent liquidation”, which is essentially placing the job of realising the company’s assets and paying out the debts into the hands of a registered liquidator. Alternatively, the company can pay out all of its debts itself and then simply apply to ASIC to be deregistered.

How much will it cost to liquidate my company?

There are many factors that will influence the cost of a company liquidation, the first being whether the company is insolvent or solvent. If the company is insolvent and there are insufficient assets available to cover the cost of the liquidation, a director’s or shareholder’s contribution will be required. The cost of a liquidation will vary depending upon:

  • how complex the job is going to be (i.e. the liquidation will be more complex if the company is still trading);
  • the value of the assets; and
  • the number of creditors involved

Every situation is going to be slightly different, so the best way to get an indication of the cost is to call us on 1800 003 883. Don’t appoint another liquidator without talking to us first. We will beat any written quote – guaranteed!

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