How does the Business Liquidation Process work? (updated guide for 2022)
Why choose liquidation for your company?
A company can go into liquidation when it is declared insolvent, which means it can’t pay its debts on time. This can happen voluntarily or involuntarily. Some companies may find that liquidating as an exit plan is the best course of action if they are not generating enough revenue to sustain the business. For example, if you cannot keep up with your competitors, if your industry is too saturated, or if external circumstances have affected your ability to run the business. If this is the case, you can choose to voluntarily liquidate your business to close it down.
What do you do when you want to liquidate your business?
Depending on the structure of your company, several processes are required to liquidate it. You would take different courses of action if you are operating a proprietary limited company compared to running a business as a sole trader.
It would be wise to consult a registered liquidator if you want to liquidate a company, as there are certain procedures that must be abided by.
What are the types of liquidation?
- Court-ordered liquidation
This is when an application for your company to be liquidated has been submitted to the court by your creditors. This is so that they can recoup some payments in the debts that you owe to them, through a court-initiated liquidation. The court then chooses an official liquidator to handle the company liquidation.
- Creditors’ voluntary liquidation
The parties that the firm owes money to vote on whether or not to liquidate it in a creditors’ voluntary liquidation.
- Members’ voluntary liquidation
Members’ voluntary liquidations usually occur when the directors of a company that can still pay its debts has decided to stop doing business. This process allows them to officially close down the business and following the required procedures.
What happens after the liquidator is appointed?
The process of liquidation, including the selection of a liquidator, can be complex and subject to stringent legal restrictions. Once the liquidator is appointed, he or she is given complete authority over all business matters. But rather than being responsible to the shareholders, the liquidator’s primary responsibility is to the creditors. The liquidator will gather the company’s assets and sell them. He or she will also look into the company’s finances and, if necessary, let creditors know what he or she finds.
The liquidator will initially use the revenues to settle the costs of the liquidation and secured creditors before distributing them to other creditors when the assets have been realised. Then, along with paying employees, the priority creditors will also be compensated. The liquidator will make sure that any money is distributed to shareholders before being given to unsecured creditors. The liquidator then submits a deregistration request for the company.
If your company is insolvent or likely to become insolvent, then act immediately by seeking the help from professionals. Australian Company Liquidations can assist you in shutting down your failed business the right way. Call us on 1800 981 070 for a FREE initial consultation now.