Preparation for Company Liquidation in Australia: What You Need to Do

Company liquidation is a significant step that involves winding up a business’s affairs and distributing its assets. In Australia, the process can vary depending on the circumstances and the type of liquidation chosen.  There are two main types of company liquidation: voluntary and compulsory. Here’s a comprehensive guide on what you need to do when preparing the company for liquidation:

At the Liquidation Advisory Centre, we have over 30 years of experience with debt management and company liquidation.  Our expert team can advise you on all aspects and guide you through the process, ensuring the best outcomes for all parties concerned. 

Assess Your Company’s Financial Situation

Before proceeding with liquidation, assessing your company’s financial health is crucial. Determine whether the company is solvent or insolvent.  It is illegal for company directors to trade insolvent knowingly. Before the company liquidation process begins, other options may be available to business owners, stakeholders, company directors or shareholders, which you can read in this article entitled “liquidation vs administration”. 

A full assessment of the company’s financial position in preparation for company liquidation will help determine the appropriate type of liquidation that should be initiated.

Choose the Type of Liquidation

Australia offers three main types of liquidation: voluntary liquidation (solvent or insolvent), court-ordered liquidation, and the recently introduced simplified liquidation. Alternatively, you could opt for a voluntary administration or small business restructuring. You should select the type that aligns with your company’s financial status and objectives.  Voluntary Administration is not a liquidation – it is an alternative to liquidation.  The best option should be to consult an Insolvency specialist from the Insolvency Advisory Centre. Contact them for a free consultation to find the best options for your situation.

A voluntary liquidation and a court-ordered liquidation are the same; it is just the process of getting into liquidation. A simplified liquidation must meet the business’s criteria to qualify.  For example, a limit on total creditor value and taxation lodgements are up to date; the company has not undergone any insolvency regime in the past seven years; and no director involved with the company in the previous 12 months has been involved with another company that has gone through an insolvency regime. Simplified liquidation also applies a different treatment to collecting preference payments against creditors.

Appoint a Liquidator

If you opt for voluntary liquidation, the next step is to appoint a registered liquidator, such as a member of our expert team at the Liquidation Advisory Centre. The liquidator will oversee the liquidation process, realise company assets, and distribute proceeds to creditors or shareholders, depending on the type of liquidation chosen. If the Court Ordered Liquidation, you do not get to choose the liquidator. The court will appoint one.

Make a Director’s Declaration of Solvency

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

Notify Creditors and Shareholders

The liquidator will assist in informing creditors and shareholders about the decision to liquidate the company. Hold a general meeting of shareholders to pass a resolution for winding up the company and appointing a liquidator. Notify creditors about the meeting and the appointment of a liquidator.

Collaborate with the Liquidator

Work closely with the appointed liquidator. Provide them with access to company records, financial statements, and other necessary documentation. Cooperate with their requests and assist in the asset realisation process.

Asset Realisation

The liquidator will take control of the company’s assets and work to realise their value. This will usually involve selling assets and settling outstanding liabilities. Managing this process can be complex, so choose a liquidator who understands the complexities of insolvency laws and can competently manage the proceeds to distribute funds to creditors or shareholders.

Compliance with Legal Requirements

Ensure compliance with all legal requirements throughout the liquidation process. This includes adhering to taxation obligations, reporting to regulatory authorities, and fulfilling any other legal obligations associated with liquidation.

Employee Considerations

If your company has employees, comply with employment laws and obligations during liquidation. Provide necessary notices and ensure employee entitlements are addressed. At the Liquidation Advisory Centre, we handle this situation with the utmost care, ensuring the rules of the Fair Work Commission are followed, and your staff receive their salary and benefits as a priority.

Distribution of Assets

Once all debts and liabilities are determined, the cash realised via asset sales is distributed to the liquidators’ fees, priority creditors, and unsecured creditors. If any surplus funds are available, they are returned to the company’s shareholders. At the Liquidation Advisory Centre, we ensure this distribution is carried out transparently and fairly.

Final Reporting and Dissolution

The liquidator is responsible for finalising the company’s affairs. This includes submitting necessary documents to regulatory authorities and formally dissolving the company once all tasks are completed.

Throughout the liquidation process, it’s essential to seek professional advice from experts experienced in insolvency, taxation, and legal matters. Professional guidance in preparation for company liquidation can help you navigate the complexities of liquidation effectively and ensure compliance with all legal requirements in preparation for company liquidation

Preparation for Company Liquidation

Preparing for company liquidation in Australia can be difficult and stressful, as it is a significant undertaking that involves careful assessment, collaboration with professionals, and adherence to legal requirements. Whether your company is solvent or insolvent, these steps can help ensure a smooth and compliant liquidation process while protecting the interests of creditors, business owners, stakeholders, company directors, and employees. Why not contact us for a free consultation? We can help you with your preparation for company liquidation.