question markquestion mark

Frequently Asked Questions about Liquidation

We have collated the most frequently asked questions in one place to help you find quick answers to important matters.

Each case is different, depending on the total debt of the company, and if the company has any assets of value.

We can get your company into liquidation within 24 hours. We will need to get some company information from you, and then the process starts.

We will email you with some basic company information required, and then we provide an appointment document that the director signs.

Yes, your credit file is flagged. You can still obtain finance however, but it is of course dependent on your financial position

In most cases, NO, you are not liable for unsecured debt with creditors including the ATO – the debt goes with the business. There are some expectations such as Super and potentially PAYG with the ATO, depending on you history of lodging BAS’s. You of course also need to be aware of any Bank debt you have that may be secured or guaranteed by you personally, and leases and/or personal guarantees for other debt such as a vehicle.

Liquidation is not bankruptcy. A company is a separate legal entity to a director. This means that company directors are not automatically liable for any outstanding company debts. The credit rating director of a company that enters Voluntary Liquidation will not be affected so long as the company was trading solvent. Any defaulted personal guarantees will be marked against your credit file.

The short answer here is YES. You can be a director of another company now or in the future but there are occasions where ASIC can ban an individual from being a director. This happens if someone has been a director of a number of failed companies or been found guilty of wrongdoing in the past.

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

As the director of a company you are protected by company law and therefore have limited liability to its debts. In almost all cases you will NOT lose your home. Any unsecured company debt should not affect your personal assets. There are however specific areas that affect assets such as your home. This includes any company loans that have been secured by a personal asset such as your home.

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.

Generally speaking, directors are not liable for company debt but there are extenuating circumstances where they may be including trading while insolvent. It is illegal to trade while insolvent and it is a director’s duty to prevent insolvent trading. If you have received a Director Penalty Notice (DPN), this is an indicator that you should be aware that your company may be insolvent.

There is no set timeline, and it may in fact take a liquidator months or even longer than a year to liquidate assets. This will depend on the amount of assets, the asset type, and the liquidity of the assets being sold off.

After converting all company assets to money, the liquidator is the first party to be paid. If there is not enough money, or there were no assets to begin with, the liquidation costs are to be paid by the directors or shareholders.

A Creditors’ voluntary liquidation is a type of liquidation started by the company itself. It is the most used type of liquidation and is commenced voluntarily following special resolution of the company’s shareholders. This may be decided upon for a number of reasons including when a company is unable to pay its debts and where voluntary administration is not viable.

Winding up is where a company ceases operations while liquidation is a subset of winding up and is the actual process of selling off any company assets. At Australian Debt Solvers, out liquidation services include creditors’ voluntary liquidation, members voluntary liquidation, provisional liquidation, and simplified liquidation for small businesses.

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.

Being a director of a company will only affect your credit rating if you have liquidated one or more companies and it has impacted your personal finances. You may have been personally liable for a secured loan if you used a personal asset as security and this would have an adverse impact on your credit rating. Therefore, it is very important to understand your legal responsibilities and obligations as the director of a company.

Being a director of a company that enters a members’ voluntary liquidation has no impact on your personal credit rating whatsoever. The biggest reason why is that companies who enter a MVL are solvent.

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:

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’.

There is no defined time limit on liquidation and the process lasts as long as required. This is the case as some liquidations may involve court proceedings that are lengthy and time consuming. Despite this, as part of their legal obligations, the liquidator must complete the task in a timely and cost-effective manner. The liquidation is finalised when the liquidator distributes any surplus funds in priority order and submits their final report to ASIC. The company will finally be deregistered and the liquidation process complete.

Ask us a question

If you haven't found the answers you are looking for, do not hesitate to reach out to us to receive free professional advice. We deal with a wide range of cases, including liquidation, insolvency, voluntary administration, and personal bankruptcy. Send us a direct message and we will be in touch with you within 1 hour.

Send a Direct Message

Company Liquidation Resource Centre

Want to learn more about Business Liquidation? Check out the Australian Debt Solvers Resource Centre which features in-depth articles written by industry professionals.

Company Liquidation Latest News

Stay up to date with the latest news from some of the foremost expert liquidators Australia has to offer. From case studies to changes in legislation you will find it all in Liquidation Latest News.