Liquidation is a procedure to bring a company’s existence to an end. The term “winding up” is also used in reference to liquidations.
We receive many appointments as Liquidators of companies that are to be wound up. There are four ways in which we may be appointed:
a) As a result of a VA where there was no DOCA or the proposed DOCA was rejected, we typically become the Liquidators when the company “rolls over” from Administration into Liquidation;
b) By an order of the Court, following a petition by a creditor(s) to have the company wound up;
c) As a result of a voluntary resolution by the members and creditors of the company to wind it up;
d) Where a company is a solvent, as a result of a resolution by the members to wind the company up to access/distribute its assets.
The role of a Liquidator is to realize all of the assets of the company for the general benefit of all the creditors. In some cases, we may continue to trade the company on for a short time so as to sell the business assets as a going concern. In other cases, we close the business and sell up the assets either by auction, tender, private treaty, or a combination of methods. Once the assets have been realized, the funds are distributed to the creditors in the order that they rank. A very simplified pecking order of creditors is as follows:
First – Secured Creditors (banks, leasing companies)
Second – Priority Creditors (employee entitlements & superannuation)
Third – Unsecured Creditors
Fourth – Shareholders return of capital
Liquidators also have a duty to investigate the affairs of the company and in some cases, may commence legal action against directors or other parties in an effort to recover money for the benefit of creditors. A common example of such recovery proceedings is insolvent trading claims brought against Directors who continued to incur debts after they knew or ought reasonably to have known, their company was insolvent.
When all assets have been sold, legal proceedings concluded and all funds distributed to creditors, the Liquidation is at an end and the Company is deregistered from the ASIC registry and ceases to exist.