What is Liquidation (also known as Business Wind Up)?
When a company is liquidated, its liquidators finalise its outstanding matters and cease trading. The liquidation proceedings are split into two types, depending on whether the company is solvent or insolvent.
Often there are solutions to avoid a liquidation or 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 the business wind up of the company, and lodge the appropriate documentation during the 12 months.
If the liquidator believes the requirements for winding up a solvent company cannot be met, they must convene either:
- Initially, a meeting of the company's creditors to consider a creditors' voluntary liquidation.
- Otherwise, a meeting of the company's members to consider a member's voluntary liquidation.
- Finally, appoint a voluntary administrator.
Winding up an insolvent company
Government requirements need to be met by an insolvent company when being liquidated. Consequently, the most important requirement is that the company cannot trade or conduct business as usual. Certainly, it can result in civil penalties or criminal charges under the Corporations Act.
A liquidator's 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, or 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.