Liquidation is the process of winding up a company’s financial affairs and ultimately results in the existence of the company ending and being deregistered at ASIC.
An insolvent company can be wound up by the Court either by voluntary resolutions of the company’s directors and the company’s shareholders or by application by a creditor.
A solvent company can also be wound up through a members voluntary winding up if the company is no longer needed.
A Court will make an order for the winding up of a company if it can be shown that the company is:
(a) actually insolvent – it cannot pay its debts as and when they fall due (even if the company has surplus assets but cannot convert them to cash them quickly); or
(b) is deemed to be insolvent (such as through a Creditor’s Statutory Demand having been served but not complied with).
The Court can order winding up for other reasons also.
Unlike during a company’s administration, personal guarantees are unaffected by liquidation – they are personal arrangements.
Secured creditors are also unaffected by the process of liquidation.
In a liquidation, after sale of the company assets etc, the liquidator will distribute as dividends any surplus in accordance with the order of priority set out in s.556 of the Corporations Act 2001 (Cth).
A liquidation lasts for as long as it takes but ends on the company being struck off ASIC’s register or by Court order – either dissolving the company or staying or setting aside the winding up.
FURTHER INFORMATION
For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.
