What does it mean when a company goes into liquidation?

What does it mean when a company goes into liquidation?

When a company is facing insolvency or extreme financial difficulty, company liquidation is the process of closing the business, selling the assets and paying as much debt to creditors as possible. In Australia, there are two paths to liquidation for insolvent companies.

Creditor’s voluntary liquidation occurs when creditors vote for liquidation after a voluntary administration or terminated deed of company agreement. Court liquidation usually happens after a creditor has applies to the court to appoint a liquidator to wind up the company. Regardless of the path taken, the result is the same.

What does liquidation mean for company directors?

During liquidation, the primary role of directors is to fully co-operate with the liquidator. They must provide all information about the company, its books and its assets to the liquidators and attend a creditor’s meeting, if requested to, to make the information available to them as well. Directors must also produce a written report for the liquidator within 14 days for involuntary liquidation and 7 days for voluntary liquidation.

Liquidators will be looking closely at whether directors knew the company was trading while insolvent. They will also be looking for inappropriate dealings. The consequences of any transgressions for directors can be severe, up to and including criminal proceedings.

What happens to shareholders when companies go into liquidation?

Shareholders are the last in line when a company goes into liquidation and only receive a return once creditors and the liquidator have been paid. There is no requirement for the liquidator to keep them informed of anything. Shareholders have no right to vote on how the process is conducted.

What happens to employees?

Employees will lose their jobs if their employer goes into liquidation. If there are not enough assets to cover debts, they may also miss out on some of their entitlements. The Federal Government runs the Fair Entitlements Guarantee Scheme. This provides minimum payments in terms of unpaid wages, annual and long service leave, payment in lieu of notice and redundancy pay.

If your company needs to be liquidated, please contact Australian Company Liquidations on 1800 175 497. We are registered company liquidators who offer a free 24/7 insolvency hotline for Australian directors seeking expert advice.