Successful liquidation process in Australia in 10 comprehensive steps
1. Decision to Liquidate
Liquidation may be chosen by a business for a variety of strategic, financial, or insolvency-related reasons.
- The winding-up process is started by the decision, and the business has to decide if Creditors’ Voluntary Liquidation (CVL) or Members’ Voluntary Liquidation (MVL) is the best course of action.
- Directors evaluate the company's financial situation and determine if they can settle all debts prior to voluntary liquidation.
- If insolvent, ASIC-mandated liquidation(“Court liquidation”) becomes required.
- To ensure that liquidation is the best course of action, directors should speak with their legal and financial advisors.
2. Hold a Board Meeting to Approve the Resolution to Dissolve
In a voluntary liquidation, the board must formally resolve to wind up the company. For solvent voluntary liquidation, directors must sign a declaration of solvency, stating that the company can pay all debts within 12 months. This declaration is filed with ASIC, and a creditors’ meeting must be called.
If insolvent, directors must pass a special resolution acknowledging the company’s financial instability and file it with ASIC. Accurate minutes of this resolution, signed by all directors, are critical to ensuring legal compliance.
3. Notify Stakeholders
All stakeholders—creditors, employees, and shareholders—must be informed promptly.
- Notices must detail the liquidation process and timelines.
- Creditors must be notified through ASIC’s insolvency notices, allowing them to submit claims.
Providing financial statements and relevant documents ensures transparency.
4. Appoint a Liquidator
A registered liquidator must be appointed to manage the liquidation process. In Australia, liquidators must be licensed and regulated by ASIC, and their appointment must be lodged with the ASIC database.
The liquidator’s duties include investigating the company’s financial affairs, ensuring assets are valued and sold, and distributing funds to creditors. The board of directors must ensure that the liquidator is experienced and capable of handling complex liquidations. A liquidator’s independence is crucial, and they should act without favoritism to ensure fair treatment of all creditors.
5. Cease Business Operations
The company must immediately stop trading:
- Terminate all ongoing operations.
- Notify employees and suppliers about the cessation.
- Avoid signing new contracts or incurring debts.
The liquidator handles account closures, lease terminations, and other operational wind-down tasks. Continuing to trade while insolvent is illegal under Australian law and can result in personal liability for directors.
6. Inventory Assets
The liquidator will conduct a thorough inventory of the company’s assets. Directors must provide full cooperation, ensuring the liquidator has access to company records, asset lists, and any relevant contracts.
Assets can include physical items like real estate, machinery, vehicles, and office equipment, as well as intangible assets like patents, trademarks, and intellectual property. The liquidator must prepare a detailed list of all assets available for sale, which is reported to ASIC and made available to creditors. Hidden or undisclosed assets may lead to legal penalties.
7. Valuation of Assets
Assets are valued to determine their market worth:
- Independent appraisers assess physical and intangible assets.
- ASIC guidelines require valuations to aim for the best return for creditors.
Transparent documentation is submitted to ASIC and creditors.Directors may be consulted to provide historical data or insights into market conditions that may affect valuation. Liquidators must document all valuations and ensure transparency in their reports to ASIC and creditors.
8. Sell Assets
The liquidator is responsible for converting assets into cash to pay off the company’s debts.
Asset sales can be done via auctions, private sales, or tender processes, depending on what yields the best return. In Australia, sales must be conducted in accordance with the Corporations Act and ASIC guidelines to ensure fair and transparent processes. The liquidator must avoid conflicts of interest and ensure that assets are sold to independent buyers at market value. Directors cannot buy back assets unless approved by the liquidator and creditors.
9. Settle Debts
Proceeds from the sale of assets are used to settle the company’s debts. Secured creditors, like banks with mortgages over assets, are paid first. Unsecured creditors, including suppliers and trade creditors, are paid next.
The liquidator must follow strict legal guidelines in the order of payments. ASIC requires that creditors are paid in priority order, and any disputes over claims must be resolved by the liquidator. After paying all creditors, the liquidator provides a detailed account to ASIC, showing how debts were settled and any remaining balance.
10. Distribute Remaining Funds
After settling all debts, any remaining funds are distributed to shareholders according to the company’s constitution and the Corporations Act. If no funds remain after paying creditors, shareholders will not receive any payout. The liquidator must prepare a final report detailing the liquidation process, how assets were sold, how funds were distributed, and any remaining matters. This report is filed with ASIC, officially closing the liquidation.
Once the final report is submitted, the company is deregistered and ceases to exist.
This information is for guidance only, is indicative and should not be taken to be advice or relied upon for action for legal process.
In call cases, should you have any queries or wish to discuss your own circumstances, find your trusted insolvency practitioners with Insolvency Australia's directory.
For expert guidance on choosing the right liquidator for your business, visit Insolvency Australia’s guide to selecting a practitioner.
In call cases, should you have any queries or wish to discuss your own circumstances, find your trusted insolvency practitioners with Insolvency Australia's directory.
For expert guidance on choosing the right liquidator for your business, visit Insolvency Australia’s guide to selecting a practitioner.