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Liquidation Process in Australia

Are you facing a difficult business decision or financial distress? Australia has seen a rise in insolvency in various industries as the country recovers from the economic effects of the pandemic. Macmillan Lawyers and Advisors can help. Our simple liquidation process breakdown will guide you through the complexities of winding up your business, minimising stress, ensuring legal compliance, and getting to know your creditors’ rights.

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Liquidation is the process of winding up and finalising your company's affairs as laid out in the Corporations Act 2001 (Cth). The liquidation process involves selling your assets and using the proceeds to settle outstanding debts before dissolving your company.

The Liquidation Process in 7 Steps

liquidation process
liquidation process

The liquidation process doesn't have a set number of steps, as the process can vary depending on the specific circumstances and chosen method. However, we’ve summarised the general stages involved:

Stage 1: Initiation

You must decide if liquidation is the right course of action and choose the type of liquidation, e.g., creditors' voluntary liquidation, members' voluntary liquidation, or court liquidation.

Stage 2: Appointing a Liquidator

A registered liquidator is appointed to oversee the process and act in the best interests of all stakeholders.

Stage 3: Taking Control

The liquidator takes control of your company's assets and operations; this will stop trading and preserve the remaining assets.

Stage 4: Investigation and Asset Gathering

The liquidator investigates your company's financial affairs, gathers information on assets and liabilities, and identifies creditors.

Stage 5: Realising Assets

The liquidator sells your company's assets in a commercially reasonable way to generate funds.

Stage 6: Paying Creditors

After selling assets, the liquidator pays creditors according to a set priority order. First, they will pay secured creditors, followed by employees and unsecured creditors.

Stage 7: Dissolution

Once all debts are paid or there are no remaining funds, your company is officially dissolved, and its registration is cancelled.

This process may look different for you, depending on your case. We recommend that you contact us at Macmillan Lawyers and Advisors to find out what steps you’ll need to take for your specific liquidation process.

How Long Does the Liquidation Process Typically Take?

The liquidation process can take anywhere from 6 months to 2 years. The time taken depends on how complicated the case is, the number of assets that need to be liquefied, or if there is a foul play investigation. You’ll find that these complex cases will take longer to complete.

What is the Role of the Liquidator?

Liquidators act in the best interests of creditors. They manage the entire liquidation process, and play a crucial role in both voluntary and creditor’s or court-ordered liquidations.

Liquidators protect, recover, and sell company assets, investigate potential misconduct, and report their findings to creditors and authorities. Their role also includes investigating unfair transactions, illegal activities, and potential claims against the company. If the liquidator is suspicious of wrongdoing and lacks funds for further investigation, they can ask for support from the Australian Securities and Investments Commission (ASIC).

Approval of Liquidator’s Fees

In the liquidation process, external administrators (like liquidators) are entitled to reasonable fees and out-of-pocket costs for their work, but they need approval before getting paid.

Who approves the fees?

  • Creditors: Usually by vote at a meeting or through written notice.
  • Committee of inspection: If one exists and creditors haven't voted.
  • Court: If neither creditors nor the committee approves the fees.

How are fees calculated?

  • The liquidator will provide a quote based on the complexity of the case and the work involved.
  • The quote can be built on a time basis (most commonly used), a fixed fee, or a percentage (15–20%) of the asset realisation (recovered funds).
  • Statutory tasks (e.g., reporting to authorities) are also considered.

What about costs?

  • Costs including legal fees, valuations, travel, and office expenses are reimbursed.

What Formal Meetings Will the Liquidator Hold With Creditors?

The liquidator may hold a creditors’ meeting, or the creditors may request a meeting. This meeting allows the creditors to accept and approve the liquidator's suggested plan of action, or they may choose to appoint a replacement liquidator.

What Reports Does a Liquidator Give to Creditors?

Creditors in a company liquidation have various rights to stay informed and involved in the process. The appointed liquidator must send reports to the creditors to update them on the liquidation process.

Initial Information

  • Creditors receive notification of the liquidator's appointment and their rights within 10 to 20 business days.
  • These rights include requesting information, reports, and meetings, directing the liquidator, and even appointing or removing them.
  • In a creditors' voluntary liquidation, the initial information also includes a company affairs summary and creditor details.
  • If the liquidator needs to approve fees, they also send an initial remuneration notice.

Statutory Report

  • Within 3 months, the liquidator sends a report detailing the company's financial situation (assets and liabilities), progress made, and potential for creditor payouts.
  • This report may also include information on recovery actions and upcoming creditor meetings.
  • For simplified liquidations, the report is more concise and focuses on completed activities, estimated wind-up date, and dividend likelihood.

Additional Reports

  • The liquidator may provide further updates on the liquidation process, although this is not mandatory.
  • Creditors can also request additional reports, and the liquidator must comply if the requests are reasonable.

We’ve summarised these reports below:

Communication Description
Initial information Explains creditors’ rights in the liquidation process.
Statutory report (within 3months) Provides details on the liquidation, with varying content depending on the chosen method (simplified or standard).
Other reports Sent at the liquidator's discretion or upon reasonable creditor request.

What Are the Different Types of Liquidation?

There are three types of liquidation in Australian law: creditors' voluntary liquidation (CVL), court liquidation, and members' voluntary liquidation (MVL). CVL is the most common type of liquidation. In some CVL cases, a simplified liquidation process may be available to reduce costs. Have a look at the table below for our breakdown of each type.

Types of Liquidation in Queensland, Australia

Type Description
Creditors' Voluntary Liquidation (CVL) Voluntary process initiated by directors when the company is unable to pay its debts.
Court Liquidation Ordered by the court, usually at the request of a creditor.
Members' Voluntary Liquidation (MVL) Voluntary process used by solvent companies to wind down operations.

What Are My Rights as a Creditor in the Liquidation Process?

Beyond rights related to meetings, reports, and dividends, creditors also have several key powers during liquidation:

  1. Disclosure of Information: Creditors can share any relevant knowledge they have about the company's situation with the liquidator.
  2. Requesting Information and Documents: Creditors can request that the liquidator provide information, reports, or documents relevant to the liquidation process.
  3. Inspection of Records: Creditors have the right to inspect specific records kept by the liquidator.
  4. Reviewing Liquidator (Standard Process Only): In standard liquidations (not simplified), creditors can appoint an independent reviewing liquidator to scrutinise the original liquidator's work.
  5. Removal and Replacement (Standard Process Only): Creditors can remove and replace the liquidator if necessary. This is done by voting at a creditors' meeting (not available in simplified processes).
  6. Complaints: Creditors can file a complaint with ASIC or the court if they are dissatisfied with the liquidator's conduct.

By exercising these rights, creditors aim to ensure transparency, accountability, and a fair outcome during liquidation.

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