Under the Corporations Act, insolvency refers to a business’s inability of a company to pay off its debts, as they fall due, out of the debtor’s company resources and refers specifically to businesses and companies. Liquidation (a form of insolvency) is the winding up process which prepares a company for deregistration.
The liquidation process involves the collection and realisation of the company’s assets; the proceeds from this are then used to pay off the company’s debts, liabilities and anything that remains. After the costs of the process have been paid, the rest is distributed amongst the members in accordance with their rights and interests, or in accordance with the company’s constitution.
A company does not need to be insolvent in order to be wound up; they can apply for voluntary liquidation instead. The winding up can be initiated through either the members or the creditors.
What is members’ voluntary winding up?
Member’s voluntary winding up occurs when the creditors are not involved as they will be repaid in full. The decision to wind-up is internal and not subject to outside influence. This type of liquidation is initiated by special resolution of the company at the members meeting. The majority of the directors may wish to make a declaration of solvency, this basically means that they have made an inquiry into the company’s affairs and have determined that the company will be able to pay its debts within 12 months of the commencement of the winding up. If however, a special resolution is passed to wind up the company, then this resolution must be lodged with ASIC within seven days and a notice of the resolution must be published in the Gazette within 21 days.
If your company is experiencing financial trouble, but is not yet insolvent, we can help in various non-liquidation arrangements such as receivership, voluntary administration and deeds of company arrangement. However, if your business is insolvent (or almost insolvent), we can also help you with the liquidation process, as well as with voluntary and compulsory winding up.
Here at The Quinn Group, our team of experienced Accountants and Lawyers can help you if your business is struggling and you would like more advice on insolvency and winding up your business. If you would like to arrange and appointment or you would like to find out more information, please submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166.