Company Liquidation Insolvency

What is Voluntary Liquidation?

Under the Corporations Act, a company that is insolvent may be wound up in a number of ways. 

The most common types of liquidation are: 

A Court Liquidation

  • Where an aggrieved creditor applies for a Court Order to have a compulsory liquidation imposed.
  • The creditor or the Court selects the liquidator to wind up the Company under this course of action. 

A Voluntary Liquidation:

  • The company director(s)/shareholder(s) select and appoint a liquidator when this type of liquidation occurs. 

The Purpose of Liquidation

The purpose of company liquidation is to enable the orderly winding up of a company’s affairs and the legal structure itself.

It is also a way in which the directors of a company are relieved of the stress of constant creditor calls.

What’s required of Directors?

Regardless of how it is commenced, the liquidation process itself is virtually identical and requires the liquidator to undertake a detailed forensic examination of the company, its transactions and the conduct of its directors and officers.

The moment appointed, a liquidator becomes the proper officer and will take control of the company and its assets for various purposes including distributing what remains.  At the same time, the directors powers are suspended.

As a director, you will be required to submit a Report on the Company’s Affairs and Property (ROCAP) – a document that describes the financial position of the insolvent company at the date of liquidation.

You will also be required, under the Corporations Act, to provide the books and records of the Company to the liquidator and to provide reasonable assistance, as may be required from time to time, by the liquidator in respect of his investigations.

How long does Liquidation take?

The Insolvency Experts can have your company placed into liquidation in as little as 24 hours.

While there is no set time limit for completion of a winding up process, we try and complete the process in as little as 4-6 months, where there are no major issues. The reason why the process takes this time is that liquidators are required to report to various government departments and then await the clearance of various steps to be able to move through to completion.

Sometimes however, a liquidation may take substantially longer but this depends on the complexity of the company and the issues involves including pursuing any legal claims that may exist.

Get expert advice 24/7 – Call The Insolvency Experts on 1300 767 525

In selecting a Liquidator, a director should ask any question whatsoever and be satisfied they understand the process of liquidation before commencing. 

The Insolvency Experts are Registered Liquidators who are forthright, sensible and commercial and who are able to provide real and practical advice on the process of liquidation. 

Is company liquidation the best step for you?

Before you place your company into liquidation you need to know :

  • whether company liquidation is the best step for your company and yourself personally and financially.
  • if there are other alternatives that are better for you and your family
  • what risks exist

As every case is different, we encourage you to call, 24 hours – on 1300 767 525 so that we can provide tailored advice to your specific circumstances.

The Process of Selecting a Liquidator yourself:

  • Only speak with a Registered Liquidator such as The Insolvency Experts (Registered Liquidator 296215) to ensure liquidation is appropriate for your company’s circumstances.

You can speak with us FREE of charge and obligation, 24 hours a day, everyday, on 1300 767 525.

Once the decision to liquidate has been made, and a Fixed Director Contribution toward the cost of the winding up agreed, we will prepare and send by email, all the documents needed to place the company into liquidation. 

These documents include:

  1. Minutes of a Meeting of Directors – the directors resolve the company is insolvent and call a meeting of the shareholders who will consider the insolvency and the appointment of a liquidator.
  2. Consent to Short Notice – normally it takes 21 days to call the meeting of shareholders however this period may be waived if 95% of shareholders sign a Consent to Short Notice. This enables the shareholders to meet immediately.
  3. Meeting of Shareholders – the shareholders resolve to appoint a Liquidator of their choosing.
  4. Various forms for lodgement with ASIC that are required to advise and formalise the appointment.

Once the company is in placed into Liquidation, the Liquidator will immediately write to all known creditors and advise them of the appointment and the need to deal only with the liquidator rather than continuing to pursue the Company director. Most directors find this immediately reduced the stress of the situation.

Initial Information to Creditors, includes:

  • A short report on the financial position of company.
  • A Notice of any Meeting of Creditors that has been called.
  • A Summary of Affairs – effectively a balance sheet position of the company at the date of liquidation 
  • A listing of all creditors names, addresses and amounts owed
  • Various ASIC information sheets – such as guides to the liquidation process, creditors rights, as well as details of the calculation and amount of the Liquidator’s remuneration.

The Insolvency Experts – 24 hours, 7 day – 1300 767 525

Company Liquidation

Can you be a Director after Company Liquidation

Yes – but there are rules in corporate insolvency and the ability to be a director in the future.

The rules are explained below but for now, all directors need to understand the Court and ASIC can disqualify a director of a company that enters external administration.

Briefly, whether in voluntary liquidation or compulsory liquidation, as long as a director is not bankrupt, convicted of an indictable offence or subject to a director banning order and disqualified from acting as a director, you are entitled to be a Director of another company immediately after liquidation.

What are the rules if you are disqualified as a Director?

A person who is disqualified from managing corporations will commit an offence under Section 206A of the Corporations Act if:

  • They make, or participate in making, decisions that affect the whole of the business of a corporation.
  • They exercise the capacity to affect a corporation’s financial standing; or
  • They communicate instructions or wishes to the directors of the corporation
    • Knowing that the directors are accustomed to acting in accordance with their instructions; or
    • Intending that the directors will act in accordance with those instructions.

How does a person become disqualified to act as a Director?

A person becomes disqualified from managing corporation under Section 206B of the Corporations Act if:

  • The person is convicted on indictment of an offence that;
    • Concerns the making or participation in making decisions that affect the whole or a substantial part of the business of a corporation or its financial standing
  • Is convicted of an offence that:
    • Is a contravention of the Corporations act and is punishable by imprisonment for a period greater than 12 months; or
    • Involves dishonesty and is punishable by imprisonment for at least 3 months
  • The person is an undischarged bankrupt
  • The person has executed a Deed of Arrangement under Part X of the Bankruptcy Act which terms have not been fully complied with.

Court Ordered Disqualification

Under Section 206C of the Corporations Act, on application by ASIC, the Court may disqualify a person from managing corporations for a period the Court consider appropriate if the Court is satisfied the disqualification is justified. 

In determining whether the disqualification is justified, the Court will have regard to:

  • A person’s conduct in relation to the management of any corporation; and
  • Any other matters the Court considers appropriate.

Under Section 206D and Section 206E of the Corporations Act, on application by ASIC, the Court may disqualify a person from managing corporations for up to 10 years if:

  • Within the last 7 years, the person has been an officer of 2 or more corporations when they have failed; and
  • The Court is satisfied that the manner in which the corporation was managed was wholly or partly responsible for the corporation failing and that disqualification is justified; and
  • On at least 2 occasions, the person has failed to take reasonable steps to prevent the contravention of the Act; and
  • The person has done something that would have contravened a persons directors duties owed to the Company under Section 180(1) & 181 of the Corporations Act – to exercise powers with care and diligence and good faith.

ASIC Ordered Disqualification

Under Section 206F of the Corporations Act the ASIC itself, without Court intervention, may disqualify a person from managing corporations for up to 5 years if:

  • Within the last 7 years before ASIC gives notice, the person has been an officer of 2 or more corporations when they have failed; and
  • While the person was acting as a director or an officer, or within 12 months after the person ceased to be an officer, each of the corporations was wound up and the registered liquidator lodged a report with ASIC regarding its inability to pay its debts

Before disqualification, ASIC must issue a notice to a person requiring them to: 

  • show cause or demonstrate why they should not be disqualified; and
  • The person is to have an opportunity to be heard on the question

ASIC must determine whether the disqualification is justified and it will consider:

  • Whether any of the corporations were related to one another
  • The person’s conduct in relation to the management of the corporations – such as not preventing insolvent trading
  • Whether the disqualification would be in the public interest
  • Any other matters that ASIC considers appropriate.

Free Professional Advice 24 Hours/7 Days – The Insolvency Experts

1300 767 525


How is Insolvency Calculated

When a company is experiencing financial difficulties and is later placed into liquidation, the appointed liquidator must undertake a detailed forensic investigation into the affairs of the Company and the conduct of its officers to explain the reasons for the Company’s failure.

This will include a determination as to whether the Company was allowed to continue to trade while insolvent.

Company Directors will often ask how does a liquidator prove insolvent trading – and what does the liquidator look for when performing this role.

What is Solvency?

One should understand the definition of solvency is set out in section 95A of the Corporations Act. It states;

  • A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

What is insolvent trading?

Insolvent trading occurs when a Company Director allows their company to trade and incur debts when it is insolvent and unable to pay those debts as and when they fall due for payment.

What Sections of the Corporations Act deal with Insolvent Trading?

Section 588G of the Corporations Act 2001 (Cth) states a Director has a positive duty to prevent insolvent trading by a company and that the section will apply if:

  • A person is a director of a company at the time when it incurs a debt;
  • The company is insolvent at the time, or becomes insolvent by incurring that debt;
  • At the time, there are reasonable grounds for suspecting the company is insolvent or would become insolvent

A person contravenes the section if:

  • They are aware at the time there are such grounds for suspecting insolvency
  • A reasonable person in a like position in a company in the company’s circumstances would be so aware.

Section 588M provides for recovery of compensation for loss resulting from insolvent trading from a director personally for a breach of this duty.

Insolvent Trading – penalties apply

If a director allows a new debt to be incurred knowing the company is insolvent and unable to pay those debts, the director may be guilty of insolvent trading and may become personally liable for the repayment of debts to the company or its individual creditors.

  1. A liquidator or an individual creditor may commence legal proceedings for an order that a director pay compensation for the damages incurred by the company or an individual creditor.
  2. A director may be disqualified from acting as a director if they are found guilty of insolvent trading.
  3. Further, fines of up to $200,000 may be applied as well as a gaol term for up to 5 years.

To determine whether a Company was solvent or insolvent and unable to pay its debts as and when debts fell due for payment, a liquidator will collect and examine the books of the company.

The liquidator will look for evidence of insolvency such as;

  • suppliers stopping credit and placing the company on COD.
  • suppliers demanding payment of the outstanding debt before resuming supply
  • whether at the time the company was generating ongoing and unsustainable losses
  • the company has poor cash flow and does not have sufficient funds to meet its short term needs
  • the company has exceeded its overdraft limit
  • the company is unable to obtain or access further credit or finance
  • creditors are demanding payment and threatening to commence legal recovery action
  • creditors are not being paid or are paid well outside of usual terms
  • debt continues to increase
  • unable to pay statutory obligations such as debts to the Australian Taxation Office for overdue taxes
  • asset being sold to fund trading
  • high staff turnover
  • incomplete books and Financial Records
  • essential maintenance of assets being postponed or ignored
  • issuing post-dated cheques and dishonoured cheques

If you are worried that your company may be showing signs of insolvency, contact The Insolvency Experts.

Call 1300 767 525

Directors have a positive duty to avoid insolvent trading

Directors must:

  1. stay constantly aware of the financial affairs and position of the company.
  2. prepare the books of the company and review its financial information regularly in order to determine whether the company can repay its debts as and when they fall due for payment.
  3. take positive steps to confirm the position of the company and realistically assess the available options if there is a question as to solvency.
  4. seek advice from a suitably qualified person if solvency is an issue
  5. act appropriately and in a timely manner to address any solvency issue

Are there defences to a claim for Insolvent Trading

A director being pursued for an insolvent trading may claim;

  1. There were reasonable grounds to expect the company was solvent at the time the debt was incurred
  2. The director relied on information produced by a competent and qualified person that lead to the view the company was solvent
  3. The director, was not involved in the management of the company for good reason, at the relevant time
  4. The director took all reasonable steps to stop the company from incurring the debt

Often these defences are difficult to access.

If you need help, call The Insolvency Experts on 1300 767 525