The Legal Requirements for Liquidation in Australia

Liquidating a company in Australia involves a set of legal requirements designed to ensure that the process is conducted transparently and in accordance with the law. Liquidation Compliance with the legal obligations set out by ASIC is essential, whether it’s a Members’ or Creditors’ voluntary Liquidation initiated by the company’s directors and shareholders or a court-ordered liquidation.

At the Liquidation Advisory Centre, we have over 30 years of experience dealing with company insolvency and Liquidation. Our expert team can advise you and guide you through the complexities of the legal requirements of company liquidations. Here’s our comprehensive  overview of the key Liquidation Compliance requirements for company liquidation in Australia:

Appointment of a Registered Liquidator

Usually, a registered liquidator must be appointed to oversee the liquidation process. The Liquidator must be a registered and licensed professional in accordance with Australian laws.

Director’s Declaration of Solvency (for Solvent Companies)

In a Members’ Voluntary Liquidation for solvent companies, company directors must formally declare company solvency. This declaration states that the company can pay its debts in full within 12 months of commencing the liquidation process.

Notification to ASIC (Australian Securities and Investments Commission)

The appointed Liquidator must notify ASIC about the company’s Liquidation. This is usually done on the day or the day after the appointment and is part of the Liquidation Compliance required by ASIC.

Informing Creditors and Shareholders

The Liquidator must write to creditors and shareholders about the decision to liquidate the company. This is usually done within ten business days.

Asset Realisation and Debts Settlement

Once the appointed Liquidator has been in charge of the company, they will take control of its assets and work to realise their value. This involves auditing and valuing all company assets, selling assets where applicable, settling outstanding secured liabilities, and managing the proceeds for distribution to creditors, stakeholders or shareholders.

Employee Considerations

The Liquidator, working in conjunction with management and company directors, will provide necessary notices and ensure employee entitlements, such as wages, superannuation, and redundancy payments, are addressed and settled before payments are made to creditors, stakeholders, or shareholders. These payments will come from the proceeds of the sale of the company assets. If the company cannot meet these obligations, then assistance is available from Fair Work Australia (FEG). If your company has employees, they may be entitled to claim against FEG for payment of outstanding entitlements (excluding superannuation) in certain circumstances. FEG has regulations and policies in place to protect company employees in Liquidation.

Taxation Obligations

The appointed Liquidator will ensure that all taxation obligations, including reporting and payment of taxes, are fulfilled throughout the liquidation process. Unpaid tax obligations may identify the company as trading insolvent and thereby create a director’s personal obligation to repay certain tax debts. Likewise, if the director has received a Director Penalty Notice and not acted within the allowed timeframe, they could find themselves personally liable for the company tax debt.

Reporting and Documentation

Maintaining accurate records and documentation related to the liquidation process is a legal requirement and something that the Liquidator will oversee. As the process progresses, the directors must prepare outstanding financial statements, reports, and documents required by law and submit these to relevant authorities, including ASIC and the Australian Taxation Office (ATO).

Distribution of Assets

The appointed Liquidator will ensure that the distribution of assets among employees and creditors in a court-ordered or creditors voluntary liquidation, or shareholders, stakeholders, employees and company directors in a voluntary liquidation, is carried out transparently and fairly, in accordance with legal requirements and priorities.

Finalisation and Dissolution

The appointed Liquidator is responsible for finalising the company’s affairs. This includes submitting final reports and documents, closing bank accounts, and formally dissolving the company once all tasks are complete.

Professional Guidance

Navigating the company liquidation process can be difficult and emotional for company directors and management. Therefore, seeking professional guidance from experts experienced in insolvency, taxation, and legal matters about company insolvency and Liquidation is highly advisable. The team of professional advisors at the Liquidation Advisory Centre can help you navigate the complexities of Liquidation and ensure full compliance with legal requirements.

ASIC Liquidation Compliance

Compliance with legal requirements is fundamental during the liquidation process, and adhering to these requirements not only ensures the legality of the process but also protects the interests of creditors, shareholders, and employees. Whether you’re involved in a voluntary or court-ordered liquidation, understanding and following these legal obligations and having the support of a trusted professional from the Liquidation Advisory Centre is essential for a smooth and compliant liquidation process.

If you are concerned about Liquidation Compliance, why not contact us today for a free consultation?