Voluntary Liquidation

Voluntary liquidationAre you looking for information about voluntary liquidation?  The company liquidation process occurs where a company is insolvent or where its members want to terminate the company. The liquidation process involves winding up any financial affairs of the company so as to make the termination process as simple as possible. It involves dismantling the company’s structure in an orderly fashion and distributing assets to creditors in accordance with the prescribed priority. As the name provides, this type of liquidation is elected by company members and is not court ordered i.e. it is voluntary.

Why chose Voluntary Liquidation?

Liquidation is the only way to terminate a company and wind up company affairs as it not only pays outstanding debts but also breaks down the structure of the company. Further, assigning these duties to an independent party ensures that all interests involved are protected without bias.

How can an insolvent company be wound up?

This can occur either by; resolution of its members, through the voluntary liquidation or administration or voluntary receivership provisions of the Corporations Act, or by the Court following application by creditors or members (this however would amount to an official liquidation).

Generally a company is wound up due to insolvency which arises where a company cannot pay all of its debts as they fall due. A solvent company can still be wound up via the usual member election or Court order upon application.

Who conducts a voluntary Administration of a company?

Members voluntary liquidation is carried out by a liquidator, who is usually a specialised accountant. Depending on the type of appointment a different subclass of liquidator will be appointed. Where an appointment is ordered by the Courts only one class of liquidator is able to administer the liquidation.

What is the role of a liquidator?

A liquidator finds, protects and releases the assets of the company. In addition a liquidator will investigate financial affairs, make appropriate recoveries, liaise with creditors, report to ASIC, distribute to creditors where assets are available and to shareholders where a there is surplus, and apply to de-register the company.

What effect does liquidation have on the company?

After voluntary liquidation and on appointment, a liquidator takes control of the company, which retains its structure until the liquidation. Directors will no longer have any control over the company, all bank accounts are frozen and employment can be terminated throughout this period. When the voluntary liquidation is completed the liquidator will apply to have the company de-registered with ASIC, following which the company will no longer exist.

Can trade continue during liquidation?

Throughout voluntary Liquidation of company a liquidator can continue to trade if it is viewed to be beneficial to creditors. This will usually be the case where i) there is a possibility that the company will be on sold or ii) where there is work in progress which can be completed for financial gain. However, trade must be discontinued as quickly and viably as practical. 

How must directors assist the liquidator?

Directors are under a statutory obligation to cooperate with a liquidator during the voluntary liquidation process. Directors must provide liquidators with all of the information and records required to complete the liquidation, particularly those which detail assets and liabilities of the company.  This includes handing over records and company books, providing information and a report regarding company affairs, and completing a Directors questionnaire.

What investigations are carried out?

A liquidator most commonly determines why a company is insolvent and when insolvency occurred. In addition investigations will be carried out to determine:

  1. If there is a potential insolvent trading claim against directors;
  2. If any preferential payments were made which can be recovered;
  3. Whether any agents, including directors, of the company have committed offences;
  4. Whether any void transactions can be overturned; and
  5. If any recoveries can be made.

Can a liquidator recover property that was sold prior to the commencement of the liquidation?

In instances where a transaction is improper, non-commercial or entered with the purpose of defrauding creditors, the property or its value may be recovered from the recipient. Any preferential payments made in the six months prior to appointment may also be recovered.

What is insolvent trading?

Insolvent trading is a claim for compensation instituted where a director has allowed a company to incur debts where they should be aware that they cannot be satisfied. If after winding up the company this debt remains outstanding, a director can be held personally liable to compensate the company for the corresponding amount.

Can a liquidator seize the director’s personal assets?

A liquidator only has control over company assets and as such can only recover director assets where they have been taken from the company or the company has loaned them the director. 

What is the effect of liquidation on personal guarantees?

As a personal guarantee is a direct arrangement between the creditor and the guarantor liquidation will have no effect where the guarantee is executed by a director or other party.

What is the effect of liquidation of secured creditors?

Liquidation does not usually affect the rights of secured creditors, however, they may allow the liquidator to sell the assets while still recognising their rights.

What is the effect of liquidation on unsecured creditors?

Unsecured creditors lose their right to recover in liquidation but still have a right to prove for dividends. Dividends must be paid in compliance with the priorities listed in section 556 of the Corporation Act:

  1. Costs and expenses of liquidation
  2. Cost of the creditor who applied for the winding up
  3. Employee entitlements
  4. Other unsecured creditors

How long do voluntary liquidations last?

The liquidation will last for as long as necessary although operate with the aim of finalising the liquidation as soon as possible. When the final meeting of creditors has been called and ASIC deregisters the company the liquidation will have come to an end.

If you want to talk about Voluntary Liquidation or any other type of corporate liquidation then contact one of our Voluntary Liquidation professionals NOW 1300 30 66 19