What you need to know about Liquidation
What is liquidation?
Liquidation is the process of winding up a company’s financial affair in order to dismantle the company’s structure by conducting appropriate investigations and enabling a fair distribution of company’s assets to its creditors. Liquidation can occur:
- when a company is unable to pay its debts
- when members want to end the company’s existence
Liquidation is the only process which allows for a company to fully wind up the affairs of a company and bring the existence of the company to an end.
What are the different types of liquidation?
A company can be wound up by:
- the courts; or
- a voluntary resolution by company directors or in some circumstances the company members.
This occurs where one or more creditors make an application to the court for the company to be liquidated. If the applicant/s successfully proves that the company is insolvent or can be deemed to be insolvent, the court will then appoint a liquidator. A company is insolvent when they are unable to pay all of their debts as they fall due. This may even occur where the company has an asset surplus, but is unable to liquidate those assets quickly. A company is deemed insolvent when they fail to do certain things which are prescribed by the law.
The court may also wind up a company in certain other circumstances, for example where there are irreconcilable disputes between shareholders or directors.
Voluntary liquidation can occur through:
- the voluntary winding up of the company initiated by members or creditors;
- voluntary administration
Members who wish to dismantle the company structure have the ability to do so through the voluntary winding up process. This option is usually taken when the company is solvent, but members have determined that the company no longer has a future.
A creditor’s winding up process is where the directors determine that the company is insolvent and decide to place the company into liquidation. The directors then appoint a liquidator. A meeting of the creditors must be held within 18 days of the resolution to wind up the company; at this point the creditors have the opportunity to change the liquidator. This process is not possible if a wind-up application has already been filed with the court.
Voluntary administration is another method of voluntarily winding up a company. This occurs where the directors appoint voluntary administrators to the company. The role of a voluntary administrator is to investigate the company’s affairs, to report and to recommend to creditors whether the company should to enter into a deed of company arrangement, go into liquidation or be returned to the directors. This process is usually the more costly approach due to the large amount of work involved.
Here at The Quinn Group we have an experienced team of lawyers and accountants who are interested in the welfare of your business. If your business is in trouble or looks like it is in need of liquidation please do not hesitate to contact us on (02) 9223 9166 or submit an online enquiry.