"Liquidation", What does it mean?
If a company
is in financial distress and it can't trade out of its difficulties,
and there is no scope for a Voluntary Administration, liquidation
of the company is an option.
The liquidation
of a company can be:-
| (A)
|
A
Voluntary Liquidation: which is started off by directors
and shareholders; |
|
OR
|
|
(B)
|
An
Official Liquidation: which is started by a creditor which
then leads to a Court Order placing the company into liquidation. |
Most liquidations
these days are the first type. Regardless of how they start,
both types follow the same pattern. To summarize, when a Liquidator
is appointed, all the tangible assets are collected, valued,
and then put to auction or sold by private treaty. The Liquidator
begins an investigation into the affairs of the company. This
may lead to further assets being realized. This may also lead
to offences, if any, being reported to the Australian Securities
& Investments Commission. Next the Liquidator draws up
a list of creditors. Typically a creditors report and notice
of meeting would then be sent out.
During
this process, the directors are required to assist the Liquidator
in his or her duties. Any guarantees directors have signed
would have to be dealt with by the directors personally, likewise
any leased cars, etc.
A set
procedure is laid down by the Corporations Act 2001 as to
how the "assets" are paid out to creditors. After
costs, generally, the employees come first, then any "secured
creditors", like a bank, then trade creditors third.
Some liquidations
become quite complex and may last for years, although most
are all over within 12 months. For "Voluntary Liquidations",
a final wrap-up meeting is held by the Liquidator to answer
any final queries.
If you
click on the information package for director's liabilities
you will find more detail on why it is important to take some
action if your company is in financial distress.
Early
action may allow you to come to an arrangement with your creditors
through voluntary administration.
To obtain
copies of these information sheets, please fill out the E-mail
Questionnaire.
