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How to liquidate a company

Julianne Leybag
20 June 2017 3 minute readShare
Money down the drain

Undergoing liquidation can be a challenging process for both business owners and creditors, but the keys to efficiency is simply to understand your available options and partnering with good, reliable professionals.

It is never easy deciding on closing your business—whether it be due to financial difficulties or other similar reasons where liquidation is the necessary recourse. Besides, the process itself can sometimes be demanding and worrisome.

To lessen the stress and proceed with an efficient liquidation process, here’s a list of things you need to do and bear in mind:

  • Consider all options first
  • Speak with and appoint a qualified liquidator
  • Understand all necessary steps in the process and your role(s) in them

Consider all options

It is a common and rather straightforward decision to proceed with the liquidation of your business. Before finally deciding on the liquidation and dissolution of your company, first make sure that you have exhausted all possible options to respond to the serious financial difficulties your business currently faces.

Once all options are exhausted and when you conclude that liquidating your business is still the most appropriate action to take, proceed by selecting a qualified liquidator you can trust.

Appoint a professional insolvency practitioner

Consult with and appoint a professional insolvency practitioner who can competently commence and complete the liquidation process.

They will assist you in understanding the necessary steps involved and the things they entail including, but not limited to, the assessment and realisation of your company assets, the distribution of your business’ surplus cash to shareholders, and prioritising payment to your creditors.

Understanding the liquidation process

Now that you’ve appointed a trusted insolvency practitioner, you can now begin to understand the liquidation process and the things it requires from you.

First, understand that there are three main ways in which a company goes into liquidation:

  • Compulsory liquidation
  • Creditors’ voluntary liquidation (CVL)
  • Members’ voluntary liquidation (MVL)

Compulsory liquidation

As a way of recovering debt, compulsory liquidation is when your creditors effectively force you into going into liquidation. Your company assets, after liquidation, will then be realised and distributed to your creditors.

The procedure for compulsory liquidation commences with the filing/presentation of a petition at court.

Creditors’ voluntary liquidation (CVL)

This process is the most appropriate when you and/or your business partners/shareholders reach the conclusion that your company is and will be unable to fulfil its financial obligations. Your liquidator will require the input of your creditors.

Your company assets will then be sold and surplus items would be distributed to members.

Members’ voluntary liquidation (MVL)

This is an option when the company is still able to pay its debt, but there is still a desire by the company’s members—at least three-quarters of them—to wind up the company. Assets are realised and the resulting balance is distributed among shareholders. Again, a qualified liquidator will be needed in this process.

Upon commencing liquidation and proceeding with the realisation of your company assets, the next thing to focus on are paying your creditors in order of priority, doing an efficient distribution of surplus cash to your shareholders, and, finally, proceeding with the dissolution of your company.

This means that once the liquidation process has been completed, the company dissolution procedure follows, with your company being struck off the registrar of companies at the Australian Securities and Investments Commission (ASIC).

How long does it take to liquidate?

With several variables dependent on each unique case, it is challenging to exact a time frame for the completion of any liquidation process. But once you’ve finally commenced with the procedure and have engaged with a liquidator who acts on it right away, an average period of two- to three-weeks is the usual time it takes to complete your liquidation process.

Potential consequences

Upon concluding to proceed with liquidating your business, you need to bear in mind that it is your responsibility to efficiently respond to the possibility that you might undergo a marked shift if the company becomes insolvent—which means it is unable to pay the debts it owes.

When this happens, you must effectively prove to your creditors that you have acted in their best interests.

Finally, to avoid personal liability threats, it is important that you act promptly and responsibly and take professional advice to assist you while you’re undergoing the process until its completion.

How to liquidate a company
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Julianne Leybag

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