Liquidation is the process of converting a company's assets into cash, and using those funds to repay, as much as possible, the company's debts.
Liquidation results in the company being shut down.
There are three different types of liquidation:
- Creditors’ voluntary liquidation – is initiated by the company's directors when they are concerned the company can't pay its debts.
- Court liquidation – starts as a result of a court order, usually made after an application by a creditor of the company.
- Members’ voluntary liquidation – is a way for solvent companies (i.e. those not in financial difficulty) to shut down.
Creditors’ voluntary liquidation is the most common type of liquidation.
Simplified liquidation
In some cases an eligible company in creditors' voluntary liquidation may follow a simplified liquidation process. The simplified process is intended to be more cost effective due to reduced investigation, reporting and distribution requirements, but much of the process remains the same.
The creditors’ voluntary liquidation process
1. Company is unable to pay its debts.
The company directors decide to place the company into liquidation.
2. A liquidator is appointed.
A liquidator is a specialist accountant who is registered with ASIC. The liquidator must be independent from the company.
3. The liquidator publishes a notice on the ASIC Published Notices website.
This is a public website, and anyone can search and browse insolvency and company deregistration notices.
4. Creditors are notified of the liquidation.
A report notifies creditors of the liquidation and advises them of their rights.
5. Creditors’ meeting.
A creditors’ meeting may be held by the liquidator or on the request of creditors. This meeting can allow the creditors to approve the liquidator's proposed course of action or decide to appoint a replacement liquidator.
6. The administration of the liquidation begins.
This usually includes:
- selling or closing the business
- identifying and selling the company's assets
- contacting and receiving claims from creditors
- sending progress reports to creditors
- investigating possible criminal offences or inappropriate transactions
- making payments to creditors (dividends).
7. Completion.
ASIC is notified and the company is deregistered.
If you need advice about company liquidation, talk to an ARITA Professional Member
