Liquidation is the process of winding up a company and bringing the business to an end. Liquidation typically occurs when a company is insolvent. When a company is placed into liquidation, a liquidator is appointed. The liquidator’s role is to protect the assets of the company, realise the assets of the company, investigate the financial affairs of the company, report any offences to ASIC, distribute funds to creditors and shareholders and deregister the company.
Liquidation is used for when an insolvent company appoints an independent qualified person, the liquidator, to take control of the company to ensure it the business affairs can be wound up in a way that will best benefit the creditors.
Before the liquidator is appointed
Before the appointment of the liquidator, the directors should do the following:
- Make the employees redundant;
- Secure company assets;
- Deposit receipts in a separate bank or solicitor client account (if there are any bank loans or overdrafts);
- Not make any payments from the existing bank accounts; and
- Cancel recurring utility payments.
Types of insolvent liquidation
There is both creditor’s voluntary liquidation – which is the most common – and court liquidation.
Creditor’s voluntary liquidation commences either by creditors voting for liquidation following a voluntary administration or a terminated Deed of Company Arrangement, or when the insolvent company’s shareholders resolve to liquidate the company and appoint a liquidator.
Court liquidator occurs when a liquidator is appointed by the court in order to wind up a company following an application.
The role of the liquidator
The liquidator has a duty to the creditors of the company. Their role is to:
- Protect and realise the assets of the company;
- Investigate the financial affairs of the company;
- Inquire into the failure of the company;
- Report any offences to ASIC;
- Distribute funds to creditors and shareholders; and
- Deregister the company.