A company begins the Voluntary Liquidation process when its owners and shareholders agree:
- it’s insolvent (i.e.the company can’t pay its debts when they’re due)
- there’s little chance of a restructure making it solvent again.
Once the decision is made (often as part of the Voluntary Administration process), a liquidator is appointed to independently administer the company’s affairs.
How they are appointed
The Liquidator is appointed by a special resolution of members at a meeting convened by the Board of Directors.
The appointment takes effect as soon as the members’ resolution is passed, at which point all company documents must bear the name of the company followed by the words, “In Liquidation”.
How they affect directors
The Corporations Act 2001 states that once the Liquidator is appointed, the Directors’ powers are suspended even though they still hold office.
They can’t perform any function as Company Director without the Liquidator's written approval. And only the Liquidator can deal with the Company’s property.
- takes control of the Company’s business, property and affairs
- carries on the business (if needed to maximise the benefit of winding up the Company’s affairs)
- manages that property and those affairs
- terminates or disposes of all or part of the Company’s property (if appropriate)
- can perform any function and exercise any power any of the Company’s officers could perform or exercise.
If trading continues, the Liquidator can liaise with the Directors on matters such as delegating authority to continue the business, reporting on trading, and other control issues.
Directors specifically need to help the Liquidator by:
- Delivering all Company books and records to the Liquidator
- Giving the Liquidator a “Form 507 – Report as to Affairs” within seven days of the appointment. This document is a statement about the Company's business, property, affairs and financial circumstances as at the date of the appointment. (We can help you prepare this document.)
- Assisting the Liquidator and providing Company information as the Liquidator reasonably requires.
How they affect creditors
Appointing a Liquidator substantially affects creditors' rights against the Company, as:
- Claims of unsecured creditors of the Company (including those of employees) are stayed. (The debts are wiped/written off, so the company no longer has to pay them.) However, employee creditors may still be entitled to claim certain unpaid entitlements under the Federal Government’s Fair Entitlements Guarantee
- Legal proceedings against the Company are also stayed
- A secured creditor can no longer enforce its security once a Liquidator is appointed.
How they wind up the company
The Liquidator must convene a meeting of the Company’s creditors within 11 days of being appointed. (That’s 11 consecutive days, not business days.)
Within six months of being appointed, the Liquidator will:
- take steps to sell assets, determine creditor claims, and report to the Australian Securities and Investments Commission (ASIC)
- pay a dividend to creditors if sufficient funds are available.
Once the liquidation tasks have been completed, the Liquidator will cease to act and ASIC will ultimately deregister the Company.
It’s hard to predict exactly long it will take them to wind up the company. But their objective will be to wind it up efficiently in the most practicable time frame.