Liquidation FAQ's

YES. This is still dependent upon your financial circumstances and lending criteria at the time of applying for finance. There are questions relating to the directorship of liquidated companies on almost all applications.

In most cases, you will be asked for an explanation, but this is usually not a determining factor in your ability to obtain finance via a successful application. It may be as simple as finding a less risk-averse lender.

NO, you cannot. The company is already in the winding-up process which means you will have to take alternative action. Options include:

• Pay the bill in full and seek to have the wind-up proceedings dismissed
• Do nothing. The business will be wound up
• Go into Voluntary Administration

For further details, read more

There is a long list of factors which are indicators of insolvency. In many instances, businesses may appear to be financially stable when they are in fact trading insolvent. Some common indicators are:

• Company debts outweigh assets
• Liquidity ratio below 1 – insufficient current assets to meet current liabilities when payable
• Declining profit margins
• Unpaid employee entitlements/loss of staff
• Legal proceedings against the company
• Unpaid creditors
• Overdue taxes
• Inaccurate reporting
• No access to alternative financing

Our guide to insolvency provides further indicators of insolvency and how to recognise them.

To become a liquidator in Australia you must be registered with ASIC. To be eligible for registration, you must:

To be eligible for this registration you must:

• be eligible to be a member of a recognised accounting industry body
• meet approved competency standards and/or have practical experience
• be an Australian resident
• provide proof of sufficient indemnity insurance
• have not been convicted of an offence involving fraud or dishonesty in the previous 10 years
• be capable of performing the duties of a liquidator.

Read more: full details of ASIC requirements for registered liquidators including application process, cost, and ongoing obligations.

Member voluntary winding up, or members voluntary liquidation as it is more commonly referred to, is where the members of a solvent company agree to shut it down. This may be undertaken for one of or a number of the following reasons:

• Viability: There may be limited prospect for growth
• Retirement: Company directors and shareholders might be planning to retire, move overseas, or have been unable to find a prospective buyer to purchase the business.
• Tax effective: Members’ voluntary liquidation could offer a tax-effective way to distribute assets to shareholders.
• Sale or transfer: If the company does not meet the criteria for voluntary deregistration, it can be wound up using a members’ voluntary liquidation.

Per ASIC, there are 5 steps for voluntary winding up a solvent company. They are:

• Company directors must make a declaration of solvency
• Company members must pass a special resolution
• Notice of the special resolution must be published on the Published notices website
• Liquidator winds up company's affairs
• Liquidator finishes winding up company and lodges final documents.

As insolvency experts, one of the most common questions we are asked is:

‘As the Director, am I Going to Lose My Home if I Liquidate the Company?’

There are special circumstances when personal liability does apply. They are outlined below:

• Secured Loans: In the event where your personal assets have been used as security, they could be used to pay off any outstanding company debts.
• Guarantees: Any personal or director guarantees that have been signed with respect to suppliers or to obtain a lease could leave you personally liable for this debt.
• Tax Implications: If you have been issued with a Director Penalty Notice there may be some personal liability.
• Trading Insolvent: Is illegal and you could be personally liable if you recklessly incurred unpaid debt with your creditors while being fully aware that the company was trading while insolvent.

A company is a separate legal entity to a director. Liquidation is not the bankruptcy with the former a term used when referring to companies and the latter, bankruptcy, reserved for individuals. It is useful to draw a distinction between them:

• Personal Bankruptcy: Can have a significant impact on your credit rating
• Director of company that liquidated: Less serious and will depend on the circumstances
• Director of a company that entered a members’ voluntary liquidation: will not affect your credit rating at all.

The entire liquidation process and steps are outlined in depth in out complete guide to business liquidation. Below are the steps for a creditors’ voluntary liquidation (CVL) which is the most common liquidation process.

• Company unable to meet its financial obligations
• Liquidator appointed
• Liquidator advises regulator with company listed on ASIC Published Notices
• Creditors notified with subsequent meetings held
• Liquidation – sell/close business, identify and sell assets, pay creditors
• Notify ASIC and company deregistered.

Employees are one of the major parties impacted when a company goes into liquidation. Not only do they lose their jobs, but there is also a major concern with respect to getting paid for work that they have already done. This is not even considering any entitlements that they may be owed.

As per legislation, employees are entitled to unpaid wages, superannuation, leave, and retrenchment. Learn more about what happens to employees when a company goes into liquidation.

As mentioned above, employees are entitled to unpaid wages, superannuation, leave, and retrenchment. There are two major issues for employees; the amount of money collected from the sale of assets is insufficient and their position in the priority order of being paid.

In many instances there is little or no remaining funds for employee entitlements. To address this issue, the Australian government introduced the Fair Entitlements Guarantee (FEG). Under the FEG, employees may be able to claim the following:

• Unpaid wages for up to 13 weeks
• Annual leave and long-service leave
• Payment in lieu of notice for up to five weeks
• Redundancy pay for up to a maximum of four weeks per year of service.

In normal circumstances there is nothing to stop you from being the director of another company. There are however instances where ASIC will prevent and ban an individual from starting a new company. This can be the case if an individual has been the director of several failed companies, been convicted of criminal offences relating to their directorship, or has a history of immoral indiscretions.

If asking ‘can I be the director of another company if I liquidate my current one’, the short answer is yes.

The different types of liquidation include:

• Creditors’ Voluntary Liquidation (CVL): started by the company itself and agreed upon by the company shareholders.
• Members’ Voluntary Liquidation (MVL): where the members of a solvent company agree to shut it down.
• Provisional Liquidation: a temporary measure used to protect the assets of a company in certain situations.
• Simplified Liquidation: restricted to small businesses with 20 or fewer employees and less than $1 million in liabilities.

When a company is winding up, one of the big questions is who gets paid first when a company goes into liquidation? There is a priority order by law as to the order in which the liquidator is to distribute any surplus funds. In brief, it is as follows:

• Liquidation costs and fees
• Secured creditors
• Priority creditors (includes employees)
• Unsecured creditors.

This will largely depend on the size of the company and the amount of assets it has. One of out experts has gone through and outlines each type of liquidation process and liquidation costs.

One area which requires special attention is small business. In Australia, small businesses account for the largest portion of businesses being liquidated. As a result of economic pressure, insolvency reform has brought about the introduction of simplified liquidation. The streamlined process and removal of several liquidator requirements has cut the cost of liquidation significantly for small businesses. The exact cost will vary but an average simplified liquidation will cost $3,000.

There are specific steps which you can take if a company that owes you money has gone into liquidation. The first step for a creditor is to send the party a letter of demand accompanied by supporting documentation such as invoiced and debt slips which will outline the amount owed.

If the company has rejected your claim or refused payment, you must now file a Statement of Claim. This is an official application to the court which will then outline possible ways for the company to satisfy the debt. There may also be circumstances where claims may be made directly against the directors.

For full details, refer to ‘What to Do If a Company That Owes You Money Has Gone Into Liquidation’.