Many businesses conduct checks on their suppliers, customers, debtors and investment partners as a matter of due diligence. While publicly available records are not as comprehensive as internal auditing, basic checks such as whether the business is in liquidation helps creditors stay informed. As a debtor company, if you are entering liquidation you will understand that your creditors and trading partners can easily find out about this.
This article outlines how a business or individual can check if a company is in liquidation, and some of the pertinent issues and impacts of liquidation.
What is liquidation?
Companies can shut down through liquidation ( creditors’ voluntary liquidation) when they are insolvent, but liquidation can also be court ordered or through members’ voluntary liquidation. Liquidation involves the winding up of the company, with a liquidator being appointed to collect assets, sell off assets, and distribute the proceeds to creditors and shareholders.
As such, when the liquidation process is initiated the business stops trading. Liquidation is one option for insolvent companies – i.e., companies that can no longer pay its debts. Because of this, it is important to keep in mind that liquidation is just one very clear indicator that a company is in trouble and, in fact, has ceased trading.
Other indicators of insolvency or trouble include the appointment of an administrator, receiver, and/or managing controller. These are also a matter of public record and you can find out about these appointments if you search the relevant databases.
Why check if a company is in liquidation
The solvency of your trading partners – such as suppliers, customers, and co-investors – and debtors can have a profound impact on your own business activities.
- Debtors – Creditors of debtor companies that are having trouble with debt repayments will want to keep up to date about any insolvency processes.
- Suppliers and customers – Staying informed of the solvency status of your suppliers and customers can also be important if you are concerned about their ability to keep supplying your business with critical goods or services, or if you are concerned about selling to them and their ability to pay.
- Co-investors – Having insolvent co-investors or joint-venture partners can affect your business operations and joint financial commitments.
Companies that have arrived at the stage where they are questioning the solvency of their trading partners probably have good grounds to be doing so. If you are the company starting the liquidation process, you will be aware that your trading partners, shareholders, and creditors can easily find out your status.
Creditors and shareholders
The parties that will be the most interested in whether a company has started the liquidation process are usually the creditors and shareholders. A debtor company’s creditors will usually take priority over shareholders when it comes to distribution of proceeds from asset sales, and the liquidators might keep creditors informed about the liquidation process from time to time with creditors’ meetings. Shareholders are unlikely to receive any dividend in liquidation proceedings unless they are also a creditor.
How to find out whether a company is in liquidation
The easiest way to find out about a company’s liquidation status is through the ASIC-operated websites. There are several ASIC sites through which trading partners can ascertain whether a company is in liquidation. Note that this is quite separate from the insolvency status of individuals related to the company (such as company directors), which can be ascertained through a search of National Personal Insolvency Index.
This ASIC operated site allows you to search by company or Australian Company Number to find out whether external administrators have been appointed to the company. This covers the appointment of liquidators, administrators, receivers, and managers or managing controllers, along with their names. These notices also cover winding-up applications filed with a court and other relevant notices. This information is accessible without a fee or the need to register.
While some notices – such as notices of appointment of court-appointed liquidators – are published in the print media, this ASIC website is the most comprehensive source of information.
The ASIC companies and organisations register is another possible source of information. You can search companies by name and have free, no-registration-required access to basic information such as name, registration date, company type, and current status. For more detailed information, you will need to pay a nominal fee for company extracts and other lodged documents, which are payable per document.
If your company is in liquidation
Liquidation can be a stressful time for debtor companies, particularly for their directors and owners. It is essential to keep in mind that when your company initiates the liquidation process, your liquidator will usually lodge the necessary notices with ASIC on your behalf. A range of information will become available to your creditors, trading partners, customers, and the general public.
If you have any concerns about you and your liquidator’s obligations to keep creditors informed about your status, it is a good idea to obtain advice from an insolvency advisor, so that you are fully aware of your responsibilities at each stage of the process.