Liquidation – What is it?

Liquidation is the process by which a company’s financial affairs are wound up in order to allow for an organised dismantling of a company’s structure, any required investigations and distribution of remaining company assets to its creditors.

Liquidation will usually occur for one of two reasons:

1. a company is no longer able to pay its debts when they fall due; or
2. the company’s shareholders have resolved to end the company’s existence.

Once a company goes into liquidation, unsecured creditors will be unable to commence or continue legal proceedings against the company, unless otherwise allowed by a court.

Who is a Liquidator?

A liquidator is an individual or a group of individuals tasked with collecting a company’s property, using any assets to pay outstanding creditors, and distributing any surplus assets among members of the company. Liquidators are sometimes also required to investigate why it is that the company’s business has come to an end. Where a liquidator is required to undertake an investigation of the company, they will usually also be obligated to report any findings to the Australian Securities and Investment Commission (ASIC).

Liquidators have the power to commence court proceedings on behalf of a company. This will usually occur where the liquidator is attempting to enforce the company’s entitlement to assets for the purposes of paying creditors. It is not uncommon for liquidators to commence proceedings for uncommercial transactions where the company’s property has been transferred for reasons other than the continuation of the business.

Liquidator’s Reports to Creditors

Liquidators will keep creditors informed throughout the liquidation process, providing statutory reports and any other reports which the liquidator considers are reasonable or are requested by the creditors. Creditors have a number of rights during liquidation including requesting reports where reasonable and asking the liquidator to deal with the collection of assets to cover their outstanding debt.

Voluntary Liquidation

Companies have the ability under the Corporations Act 2001 (Cth) to voluntarily wind up a company if the members resolve to do so by special resolution. The circumstances in which the company is being wound up will impact on who actually appoints the liquidator. Where the company is solvent at the time the voluntary liquidation is resolved, the company will appoint a liquidator. If, however, the company is insolvent upon liquidation, creditors of the company will appoint a liquidator.

Involuntary Liquidation

Where a creditor seeks to be paid by a company, they may choose to apply to court that the company be wound up in order to pay its outstanding debts. Where the court makes an order in the creditor’s favour, an official liquidator will be appointed and the company will go into involuntary liquidation.

Here to Help

Proper experience in dealing with company liquidation is essential. Aitken Whyte Lawyers are focused on results. Our commercial law team will advise you on the proper course to take if you are a creditor and would like to apply to wind up a company due to unpaid debt, if an application to appoint a liquidator has been brought against your company, or if you are the director or a company and wish to enter into voluntary liquidation or external administration.

Aitken Whyte Lawyers can assist you with all matters relating to company liquidation.

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Sunshine Coast

Maroochydore
Aitken Whyte Lawyers
11/8 Pikki Street,
Maroochydore Qld 4558
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