Liquidation, also known as Business Wind Up
Liquidation is a process where a company’s outstanding matters such as tax debt are finalised, and the company ceases trading. However, there are different types of wind up proceedings. As such, these proceedings are determined by if the company is solvent or insolvent.
Often there are solutions to avoid a business wind up, however it can also be an unavoidable situation. Some short term business loan solutions include unsecured business finance or business caveat loans.
Winding Up A Solvent Company
A solvent company must be a position to pay all its debts within 12 months, and the directors make a declaration of solvency under a form 520 (ASIC). As such, it is an offence under the corporations' act 2001 to make a false declaration for solvency. Therefore, we advise obtaining professional advice before making a declaration for solvency or proceeding with any liquidation or business wind up actions.
The liquidator can then begin business wind up of the company, and lodge the appropriate documentation during the 12 months. Plus, if at any time the liquidator believes the requirements for winding up a solvent company cannot be achieved, they must either:
- Firstly, convene a meeting of creditors.
- Secondly, apply to the court for the company to be wound up in insolvency.
- Finally, appoint voluntary administrator.
Winding up an insolvent company
Government requirements need to be met by an insolvent company when being liquidated. The most important is that the company cannot trade or conduct business as usual, as it can result in civil penalties or criminal charges under the corporations' act.
A liquidators job is to take over control of the insolvent company. Plus, ensure creditors are treated fairly. As such, the liquidators' job is to sell the company assets and pay back a fair distribution to the creditors.
It is essential to employ the services of a professional insolvency practitioner to assist in determining if your company is solvent, insolvent and the steps required to move your company through this transition.
The Australian Tax Office and tax debt is a major cause of business wind up in Australia.
Related Links about liquidation and bankruptcy.