Liquidation or 'Winding Up' is a process for the ‘winding up’ of a company's financial affairs in order to provide for an orderly dismantling of the company's structure.

This involves the undertaking of appropriate investigations and a fair distribution of the company's assets to its creditors. This occurs either because the company cannot pay all of its debts or when its members decide to end the company's existence, for various reasons.

When a company is declared bankrupt the Court has the power to ‘wind it up’ and appoint a Liquidator, whose responsibility is to turn the assets into cash and distribute it in the order set out under the Corporations Act 2001 (Cth). The creditor and the liquidator firstly recover their costs, followed by certain entitlements to employees. The balance is distributed among unsecured creditors.

Winding up proceedings are handled in either the Supreme Court or the Federal Court. Watson and Watson’s liquidation specialists can assist you by filing an Originating Process. If the Court is satisfied that the company is trading insolvent, it can then appoint a liquidator.

What Happens if a Liquidator is Not Appointed?

If the company has a solid core business that would allow it to trade viably in the future, the Courts can appoint an Administrator. See our Administration & Voluntary Administration page.

When Will a Court Order a Company to be Liquidated or
‘Wound Up’?

A Court may order a company to be wound up and placed in liquidation when:

1. The company is proved to be insolvent;
2. The directors have acted in their own interests, in contrast with the interests of the shareholders of the company;
3. The Court is of the opinion that the interests of the public, shareholders or creditors are best served by liquidating the company; or
4. Where the Court is of the opinion that it is both ‘just and equitable’ that the company be wound up.

How Can an Insolvent Company be Wound Up?

There are two ways in which a company can be wound up:

1. It can be wound up by the Court. The applicant must prove to the Court that the company is trading insolvent or can be deemed insolvent. The Court will then appoint a liquidator - often nominated by the creditor. The Court may also wind up a company when there are irreconcilable disputes between its shareholders or members.

2. It can be wound up voluntarily at a meeting between its members or creditors - who can then nominate a liquidator. This process can be carried out through the Voluntary Winding Up or the Voluntary Administration provisions as set out in the Corporations Act 2001 (Cth).

Who Administers a Liquidation?

Liquidations are administered by liquidators. These are specialist accountants who can either be:

Registered Liquidators – members of accounting firms or other recognised bodies who have qualifications and practical experience in winding up companies; or

Official Liquidators – experienced liquidators who have been registered with the Courts, and who may be appointed by the Courts.

What Process Does a Liquidator Follow?

The liquidator will investigate the facts; make appropriate recoveries; issue reports to the ASIC and creditors; distribute surplus funds to creditors or shareholders; and ultimately deregister the company.

What Must Directors Do to Help Liquidators?

Company directors must supply all of the information about the company's affairs and provide a Report as to Affairs (detailing the assets and liabilities of the company) and a Director's Questionnaire. The directors must also deliver all company books and records, and cooperate with the liquidator throughout the process. Non-conformance with the liquidator can result in sanctions under various offence provisions.

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