What to do in Financial Difficulty
Once a company is having financial difficulty or has become insolvent the company may go into liquidation. Liquidation involves drawing to a close all of a company‘s dealings, so that the business operations can be shut down. Assets are turned into currency, and subsequently used to settle any liabilities. Once all creditors’ debts and other liabilities have been settled, the remaining money, if any, is disbursed to stakeholders of the business.
The purpose of liquidation of an insolvent company is to have an independent and suitably qualified person (the liquidator) take control of the company so that its affairs can be wound up in an orderly and fair way for the benefit of all creditors.
A business may be liquidated if the owners decide to cease operations, or there is a cash short-fall and the entity is unable to pay creditors. There are two types of insolvent liquidation:
– creditors’ voluntary liquidation, and
– court liquidation.
The most common type is a creditors’ voluntary liquidation, which usually begins in one of two ways:
– creditors vote for liquidation following a voluntary administration or a terminated deed of company arrangement, or
– an insolvent company’s shareholders resolve to liquidate the company and appoint a liquidator. Within 11 days of being appointed by shareholders, the liquidator must call a meeting of creditors who may confirm the liquidator’s appointment or appoint another liquidator of the creditors’ choice.
In a court liquidation, a liquidator is appointed by the court to wind up a company, following an application, usually by a creditor. A liquidator is normally an accountant who is specifically skilled in the liquidation process – these are the people that will carry out the liquidation of your company. They must be either registered with ASIC or the Courts. Others, including a director, a shareholder and ASIC, can also make a winding-up application.
Important liquidation notes:
– During the liquidation process, a company can still operate; though only if the liquidator deems it to be in the best interest of creditors.
– The liquidation process has no time limit – it will go for however long it is required.
– The liquidation process is finalised once the company is removed from the ASIC register, normally brought about by the liquidator.
– After a company goes into liquidation, unsecured creditors can no longer commence or continue legal action against the company, unless the court permits.
If your business is in trouble or looks like it is in need of liquidation please do not hesitate to contact us. Here at The Quinn Group we have an experienced team of lawyers and accountants who are interested in the welfare of your business. Contact us now by submitting an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to book an appointment.