Liquidation

Liquidation - whether court ordered or voluntary - is a process whereby a company has its assets realised and distributed to satisfy, as far as possible, its liabilities and repay shareholders. It is a terminal process, followed by dissolution of the business, which can also occur when administrators are called in too late.

The key challenge for the liquidator is to act quickly and judiciously to realise as much of the value of the company as possible, so that potential short falls to creditors and shareholders are minimised. This is a difficult task. Move too hastily - without investigating the options - and it could mean the end of the business, which perhaps could have continued trading after all. Act too slowly and there may be no value left to realise.

It takes a trained, specialist practitioner to make the right decision. Our licensed insolvency practitioners have many years experience in handling liquidations and winding down companies.

• Members Voluntary Liquidation
• Creditors Voluntary Liquidation
• Provisional Liquidation
• Official Liquidation

In all instances a liquidation is said to commence either on the passing of a resolution or on the date the Court makes an order.

Members Voluntary Liquidation
Directors may decide they have no further use for a company, generally because it has ceased to trade. It is a criteria that the company is solvent. A members voluntary liquidation is instigated by a meeting of members of the company.

Creditors Voluntary Liquidation
When a company is insolvent, the wishes of creditors and members need to be accounted for. This type of liquidation can be instigated two ways. The first is initiated by a meeting of members resolving the company is insolvent, followed by a meeting of creditors of the company, who confirm the company needs to be wound up.

The second method occurs when creditors resolve in a Voluntary Administration that a company be wound up or a Deed of Company Arrangement fails. The company is then placed in voluntary liquidation.

Provisional Liquidation
This appointment is ordered by the Court. The role of a Provisional Liquidator is to firstly protect the assets of the company, and investigate and report as to the whether the company can continue to trade or is insolvent. The court may, after a period, order the company to be wound up.

Official Liquidation
This appointment is also made by the Court and may come as a result of the appointment of a Provisional Liquidator or a creditor of the company petitioning to the Court to have the company wound up.

Effects of Liquidation
Once a company is placed into liquidation, creditors may not continue any recovery action against the company. Their rights are restricted to proving their claims to the Liquidator and, ultimately, receiving a pro rata distribution of the company's assets. An order of priority exists in the distribution of funds to creditors.

Upon Liquidation the directors of the company lose all of their rights to manage the company. Their obligation is to assist the Liquidator with information in respect of the company's position.

A Liquidator has broad powers to allow him or her to realise and recover the company's assets. It may also involve a recovery action for unfair preferences, uncommercial transactions and an action against the directors for incurring credit whilst they knew the company was insolvent.

A Liquidator of a company may call a meeting of creditors at any time. Meetings are conducted subject to the Regulations of the Corporations Act.