Both administration and liquidation are formal insolvency procedures, however they are significantly different. Administration is entered into with an aim of rescuing the business and recovering it so that the company can avoid insolvency. Liquidation is the process used to realise a company’s assets prior to it closing.
A company in will enter into administration when the directors of the company believe that the company is insolvent or will become insolvent. If this occurs, an administrator (who is a person external to the company) will be appointed to manage the company. A voluntary administrator can either be appointed by directors of the company, by a liquidator or by a secured creditor.
The administrator will take control of the company’s assets, investigate the company’s affairs, report any offences to ASIC, assist the directors to produce a Deed of Company Arrangement, report to creditors on the best course of action and call meetings of creditors in order to decide whether the company should be wound up and put into liquidation or continue to trade.
During the process of administration, the creditors will have 3 options; to accept a proposal for a DOCA, end the voluntary administration and pass control back to the directors or liquidate the company.
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.
If your company is experiencing financial issues, administration or liquidation may be an option for you. Call us on 1300 023 782 for a no obligation discussion as to your options. Craig Dangar will assist you to understand your options.