A Guide to Legal Compliance in Liquidation

Liquidation is a formal process governed by laws and regulations in Australia, and ensuring legal compliance is essential for all parties involved. Whether initiating a members’ voluntary liquidation (MVL) or facing compulsory liquidation via a Creditors’ Voluntary Liquidation (CVL), adhering to legal requirements is crucial to conducting the process effectively and lawfully.

At the Liquidation Advisory Centre, we have over 30 years of experience assisting directors navigate all aspects of company liquidation. We can guide you every step of the way, ensuring compliance minimising risk, and liabilities. Here’s an overview of key legal compliance considerations directors should be aware of during the liquidation process:

Appointment of Liquidator

• Qualifications: The appointed Liquidator must be a registered and licensed insolvency practitioner, complying with the requirements set out by regulatory bodies such as the Australian Securities and Investments Commission (ASIC). The team at the Liquidation Advisory Centre are ASIC-registered and have over 30 years of experience dealing with all aspects of liquidation.
• Conflict of Interest: Liquidators must declare any conflicts of interest that may compromise their independence or impartiality in their duties. At the Liquidation Advisory Centre, we have well-established processes to ensure no conflicts of interest can arise with our clients and team members.

Notification and Disclosure

• ASIC Notification: Companies must notify ASIC of their intention to enter members’ voluntary liquidation (MVL) and provide the relevant information and documents as required by law. In the case of a Creditors’ Voluntary Liquidation (CVL), the creditors must notify ASIC of their intentions.
• Director’s Statement: In Members’ Voluntary Liquidation (MVL), directors must make a declaration of solvency, confirming that the company can pay its debts in full within 12 months. At the Liquidation Advisory Centre, we can guide and assist you with the required paperwork for this process.

Meetings and Resolutions

• Meeting Notices: In Members’ Voluntary Liquidation (MVL), proper notice must be given for meetings of directors or shareholders convened to pass resolutions authorising liquidation and appointing a liquidator. At the Liquidation Advisory Centre, we can help you ensure that public records are posted and that you meet the compliance regulation requirements.
• Decision Making: Resolutions passed at meetings must comply with the company’s constitution, the Corporations Act 2001 (Cth), and other relevant laws. At the Liquidation Advisory Centre, we can help you ensure compliance.

 Realisation of Assets

• Asset Sale: Liquidators must conduct the sale of the company’s assets to maximise value for creditors and shareholders while complying with legal requirements regarding transparency. The role of the Liquidator is to ensure fairness and compliance for all parties concerned.
• Employee Entitlements: Proceeds from asset sales must be used to pay outstanding employee entitlements, such as wages, superannuation, and redundancy payments, in accordance with statutory provisions.

Settlement of Liabilities

• Creditor Payments: Liquidators are responsible for settling the company’s liabilities, including paying creditors in accordance with the priority regime set out in the Corporations Act.
• Preferential Payments: Certain creditor payments, such as employee wages and superannuation contributions, may have priority status and must be paid ahead of other unsecured creditors.

Reporting and Record Keeping

• ASIC Reporting: Liquidators must comply with reporting requirements set out by ASIC, including lodging various forms, statements, and reports throughout the liquidation process.
• Records Retention: Liquidators must maintain accurate records of all transactions, communications, and decisions made during the liquidation process, ensuring transparency and accountability.

Regulatory Oversight

• ASIC Oversight: ASIC oversees the conduct of liquidators and ensures compliance with legal requirements, investigating any instances of misconduct or non-compliance.
• Court Oversight: In the case of a Creditors’ Voluntary Liquidation (CVL), the courts may provide oversight and guidance on matters related to liquidation, resolving disputes, and ensuring fairness and equity for all parties involved. This may also apply to a Members’ Voluntary Liquidation (MVL) if the Liquidator and the stakeholders cannot resolve disputes.

Ensuring Legal Compliance in Liquidation

Legal compliance is paramount in the liquidation process in Australia, safeguarding the interests of creditors, shareholders, employees, and other stakeholders. By adhering to legal requirements, liquidators can conduct the process transparently, fairly, and efficiently, minimising the risk of legal challenges or regulatory sanctions.

The team at the Liquidation Advisory Centre can offer professional advice to ensure compliance with the complex legal framework governing liquidation and help you to navigate any challenges or issues that may arise during either the Members’ Voluntary Liquidation (MVL) or Creditors’ Voluntary Liquidation (CVL) process.