Company Liquidation vs Bankruptcy

Liquidation and bankruptcy are processes that can be used for debt relief and debt settlement. The key difference is that liquidation aims to wind up insolvent businesses, whereas bankruptcy applies to insolvent individuals and some businesses such as sole proprietorship. Starting these processes also differs, with liquidation offering voluntary and involuntary options, while bankruptcy is mostly voluntary with rare creditor-driven exceptions.

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When it comes to financial distress, businesses and individuals often face tough decisions. As a premier insolvency lawyer in Australia, Macmillan Lawyers and Advisors is here to guide you through the complexities of these processes. This article aims to provide a comprehensive comparison by shedding light on the distinctions between liquidation and bankruptcy to assist you in making informed choices.

What is Liquidation?

Liquidation can be seen as a controlled and organised company shutdown that resolves financial issues when the company can no longer sustain its operations or pay its debts. Accordingly, it is the process of finalising and winding up the company’s operations in compliance with the Corporations Act 2001 (Cth). Essentially, the company stops its operations, sells its assets, and uses the proceeds to settle its debts.

Additionally, the liquidation process allows for the potential recovery of assets and systematic debt settlement; however, the business ultimately ceases to exist, and directors may face personal responsibilities based on the circumstances.

What is Bankruptcy?

Bankruptcy, on the other hand, is a legal process for individuals or specific types of businesses facing overwhelming debt. It provides a path to relieve the burden of debt and provides individuals with a structured way to regain financial stability. In bankruptcy, a person works with the court to create a plan for repaying debts, and certain assets may be protected.

Bankruptcy does have its downsides, however, such as a negative impact on credit scores, public disclosure of the filing (permanently listed on the National Personal Insolvency Index), and restrictions on financial decisions. Notably, bankruptcy and personal insolvency are regularly used interchangeably, but in reality, their regulations and outcomes are quite different.

Liquidation vs Bankruptcy: Similarities

Liquidation and bankruptcy share common ground. Both:

  • Address financial distress and the inability to pay debts
  • Involve legal proceedings overseen by courts or official bodies
  • Aim to settle outstanding debts and distribute remaining assets fairly.

Key Differences

Liquidation VS Bankruptcy Liquidation VS Bankruptcy

Who Can File?

  • Liquidation: Applicable to businesses (companies, partnerships)
  • Bankruptcy: Applicable to individuals and some types of businesses (sole proprietorship)


  • Liquidation: Voluntary (directors' or members' resolution) or involuntary (creditor or court-ordered)
  • Bankruptcy: Typically voluntary, but can be involuntary in extreme cases (creditor-petitioned)



  • Liquidation: Primarily to wind up the business and settle debts with remaining assets.
  • Bankruptcy: Prioritises debt repayment but also offers options for debt relief and a fresh start for individuals.


  • Liquidation: Business ceases to exist, while directors may face personal liability.
  • Bankruptcy: May involve limitations on credit, but generally preserves individual assets and income potential.

What Is the Difference in Process? Liquidation vs Bankruptcy

Navigating the timelines of liquidation and bankruptcy is essential for informed decision-making. While specific durations can vary based on individual cases, here is a general overview:


Initiation and Liquidator Appointment The appointment of a liquidator occurs relatively promptly, usually within weeks of initiation.
Asset Disposal This phase, involving the sale of company assets, typically spans a few months.
Debt Settlement Finalising debt settlements and concluding the liquidation often takes between 6 months and 2 years.


Filing and Proceedings The initiation of bankruptcy proceedings is faster, often occurring within weeks of filing.
Asset Evaluation Asset evaluation may extend over a few months.
Debt Settlement Debt settlement within bankruptcy proceedings can range from several months to several years, depending on the complexity and amount of debt. Bankruptcy as a legal status generally lasts for at least 3 years and 1 day.

Factors influencing timelines include the complexity of financial affairs, the cooperation of involved parties, and legal intricacies.

Roles and Responsibilities of Parties in Liquidation vs Bankruptcy

Understanding the roles of key players is crucial in the liquidation and bankruptcy processes, as this allows for a smoother process:


Liquidator Manages the entire process, from asset disposal to debt settlement and company deregistration.
Creditors Hold a stake in the distribution of assets based on their claims.
Directors Cooperate with the liquidator, providing necessary information.


Trustee Oversees the bankruptcy proceedings, manages the estate, and ensures creditor interests.
The Court For involuntary bankruptcy, the court reviews the creditor’s petition and will issue a sequestration order if the petition is approved.
Creditors Participate in meetings with the trustee and may receive repayments as per the agreed plan.

Understanding the differences between liquidation and bankruptcy is important when facing financial difficulties. Macmillan Lawyers and Advisors encourages seeking professional legal and financial advice for tailored solutions. For further information and support, explore our resources or consult with our professional team. We are experienced bankruptcy and liquidation lawyers, and we're here to guide you every step of the way.

Which Do I Choose, Liquidation or Bankruptcy?

If you're an individual seeking debt relief and a fresh start, bankruptcy would be suitable. For businesses, liquidation closes operations and can provide some relief. Consult with Macmillan Lawyers and Advisors for personalised guidance on the way forward. Book an appointment today for professional assistance in navigating the complexities of bankruptcy and liquidation.

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Phone: 073 518 8030

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Visit us at: Level 38, 71 Eagle Street, Brisbane QLD 4000


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