A Comprehensive Guide to Understanding Liquidation

When a company struggles to pay its debts and faces insolvency, one option it may consider is liquidation. Liquidation is winding up a company’s affairs and selling its assets to pay off its creditors. If your business is trading in insolvency and considering liquidation as an option, it’s essential to understand the process and the laws surrounding it. 

Liquidation is part of the ASIC law explicitly designed for struggling small businesses as a faster, low-cost way to wind up an insolvent company. However, before deciding, it’s essential to weigh the advantages and disadvantages of liquidation.

The Corporations Act 2001 (Cth) governs the liquidation process in Australia. There are two types of liquidation: voluntary and involuntary. Voluntary liquidation occurs when the company’s directors decide to wind up the company and appoint a liquidator. On the other hand, involuntary liquidation is initiated by a creditor or the Australian Securities and Investments Commission (ASIC).

Once a company enters liquidation, the liquidator takes control of its affairs and assets. The liquidator’s primary role is to sell the assets and distribute the proceeds to the company’s creditors. The liquidator will also investigate the company’s affairs to determine if any misconduct or wrongdoing has occurred.

It’s important to note that once a company has become liquidated, its directors no longer control its affairs. The liquidator is responsible for making decisions about the company’s assets and affairs, and the directors must cooperate with the liquidator.

The liquidation process can be complex and time-consuming, and it’s important to seek professional advice from a qualified insolvency practitioner. An insolvency practitioner can help you understand the liquidation process and the options available to your business.