Liquidation is one of the most dramatic solutions to help you straighten out and solve a company’s problems. During the liquidation process, all operations are immediately ceased and all company assets are sold to pay off debt. Liquidation occurs during the final stages of a struggling business and often in the business ceasing all forms of trade and deregistration as a company.
Voluntary and Involuntary Liquidation
Because liquidation usually results in the ceasing of a company, businesses will usually hold off the process until their hand is forced by the courts. Involuntary liquidation is relatively common in Australia but you can also apply for liquidation yourself if you don’t see a possible solution for your struggling business or if you want to avoid the stress and cost associated with the legal process.
Voluntary liquidation may exclude the cost and challenges of court arguments but they inevitably result in the same outcome namely the selling of all assets and deregistration. The voluntary liquidation process can be conducted in seven simple steps whereas involuntary liquidation includes a number of additional steps such as court visits and visits to your lawyer.
The Liquidation Process in Seven Steps
If you decided to liquidate your company on your own free will to avoid court intervention then you should be aware off the following steps. Here is a quick take on the seven-step process that most voluntary liquidation companies go through.
Identify all business assets and to properly protect these assets to ensure their value is maintained.
The second step is to realise the assets of the company.
At this point, a full-on investigation is launched on all financial affairs of the company following startup.
Submission of the appropriate reports to ASIC and creditors are created. These reports usually include any misdeeds the company undertook upon which action might need to be taken.
The revenue realised from all assets is then distributed to even out debt at creditors.
If there is a surplus of funds remaining after paying off all creditors, the funds are distributed to the shareholders. If no shareholders exist within the company then these extra funds are paid into an account in the name of the corporate appointee by the liquidator.
The company is deregistered and will cease to exist.
Administration Can Be a Less Destructive Alternative
It is evident, liquidation can be a stressful situation that always ends in the disintegration of a business. Companies that might still be saved can choose to enter a state of administration rather than liquidation.
Voluntary administration happens when a business is declared insolvent or likely to become insolvent. When an administration is conducted, the company directors are permitted to restructure the organisation so it can continue trading, once the voluntary administration process has been completed.
In this strategy, an administration will look at the company’s affairs, structure and will report to the company’s creditors. The administrator will also determine the best course of action to take so debts can be rectified.
Administration typically lasts for about five weeks after which the creditors will be satisfied and the company will resume business operations as normal.
This strategy can be appointed in different ways:
- The company director can request an administrator appointment
- A liquidator can appoint an administrator to see if the business can be saved
- A creditor can have a voluntary administrator appointed to the company
Both administration and liquidation are complex strategies. If you want to find out more about these strategies or would like to schedule an appointment to speak with a liquidation consultant with expertise in corporate restructuring, contact your local Restructure and Taxation Advisors today.