Are your business troubles keeping you up at night?
For many, deciding what to do with their failing business is one of the biggest decisions they will ever have to make. Is there a way to improve sales? Can you cut costs further? Should you sell your house and invest more into your business?
Battling to keep a failing business afloat can take a toll on your mental and physical health as well as the well-being of your family.
Unfortunately for some struggling businesses, liquidation is the only option.
What is liquidation?
Liquidation is the process by which a business and it’s affairs are legally brought to an end. Company Liquidation can be a means to mitigate their financial situation and limit any personal liability of the company directors. Any and all assets of the business are liquified and distributed to secured creditors in a legally fair and correct way. Unsecured creditors may be repaid if there are funds remaining after all other debts have been paid.
Liquidation is different from voluntary administration as it is the process of selling all assets before dissolving a company as opposed to ensuring company debts are paid in full to escape insolvency.
Whether or not liquidation is the best option for your business is a difficult decision and is best left to the professionals.
Receive free, expert liquidation advice available 24/7 by calling The Insolvency Experts.
Our experts will assess your individual situation and determine if liquidation is the best way forward for your business. If you decide to liquidate your business, you will need to appoint a liquidator to take control of the affairs of the company, including all assets. The powers of a liquidator are further explained in Section 477 of the Corporations Act and include;
- collect and protect assets of a company;
- trade the business of a company;
- sell the assets of a company;
- investigate the financial affairs and any transactions of the company;
- undertake any legal recoveries or claims.
Can a company trade while in liquidation?
Once a company goes into liquidation, they do not necessarily have to cease trading. A company may continue to trade whilst in liquidation, however this decision is at the discretion of the liquidator. A liquidator has the power and authority to trade a company whilst in liquidation in order to sell the assets to pay its debts or if it is in the best interest of the creditors to do so. A liquidator may also continue trading a company for a short period of time in order to complete and sell an otherwise profitable business.
While the role of a liquidator is ultimately to bring a business and its affairs to an end or ‘wind up a company’, they do have the power under the Corporations Act to trade a company while in liquidation if it is commercially beneficial and practical to do so.
What is the liquidation process?
Liquidation can either be voluntary or involuntary, depending on who instigated the liquidation. When a company is insolvent, the directors and shareholders may instigate a creditors voluntary liquidation.
The first stage of any liquidation is appointing a liquidator. A liquidator will gain control over all business affairs so it is essential to select a reputable, reliable and trustworthy liquidator. The role of a liquidator is ultimately to realise, collect and liquify the company’s assets for the purpose of distributing the sale proceeds to proven creditors. A good liquidator will be willing to explain the entire liquidation process to business owners and directors, outlining every stage of the process and the effects it will have. They will be there to answer any questions you may have and provide clarification should you require it.
Confidential advice available 24 hours – Call 1300 767 525
Once a liquidator is appointed, the next step is passing a director’s resolution. This stage is often the most taxing for business owners and directors as it officially expresses the intention to liquidate. Once the directors resolution has been passed, a meeting is called where shareholders can complete the final step in starting a liquidation.
After a liquidator has been appointed and the directors resolution has been passed, the liquidation process is outside of the business’ hands entirely. At this stage all powers of the director will be suspended.
Apart from the control, collection and sale of the company assets and affairs, the liquidator must also undertake a detailed investigation into the company’s financial dealings including reasons for failure and the conduct of the directors. The appointed liquidator will identify any illegal or voidable transactions and identify whether the directors have acted appropriately and legally.
All findings of a liquidators investigation are turned over to the ASIC and the company’s creditors. A liquidator will facilitate the sale of company assets and the distribution of any surplus funds.
All creditors will be notified of the liquidation and will now contact your liquidator directly. If a creditor does call you, simply refer them to your liquidator. Your liquidator will take care of everything to do with your company so you are able to focus on other aspects of your life. Occasionally, the director may be required to assist the liquidator as reasonably necessary.
What is the effect of liquidation on a company?
After the liquidator has completed all above steps, the process has officially finished and the company is now liquidated. Majority of liquidations are effectively completed within 4-6 months, allowing you to move on with your life as quickly as possible. While the official process of liquidation takes a few months, the burden on the director and company are removed as soon as the liquidator is appointed.
Business liquidation allows the past to be left behind and a new page to be started. Harassing letters from creditors, the ATO and debt collected will cease and will be dealt with by your liquidator until the process is complete.
Once a business has been liquidated, any outstanding debts incurred by the company will be written off or dealt with during the liquidation process. This is able to occur as the company is viewed as a separate legal entity. The director is not the company and therefore the director is not personally liable to repay the debts of the company. Unless a creditor has a personal guarantee, business liquidation will free you of the debts of your company.
Legal action is also halted as soon as the liquidation process commences. Section 471B of the Corporations Act prevents any person from commencing or continuing with legal actions against the company without first seeking a Court order to do so.
The process of liquidation may also allow your employees to be paid their entitlements if you are unable to. The Fair Entitlements Guarantee Scheme is able to respond to employee claims and will pay most of their unpaid entitlements including wages, annual leave, payment in lieu of notice and redundancy if they lost their jobs due to insolvency.
In reality, making the decision to liquidate your business is the most difficult part of the process. Once you have made this decision and appointed a liquidator, the process is no longer in the hands of the company. Our liquidation experts are often told “If I had known this sooner, I wouldn’t have lost everything by putting it into a failing company. I should have done this a long time ago”. If you are unsure of the best decision for your company moving forward, contact our liquidation experts now for free expert advice.
With over 30 years of experience, Insolvency Experts are your low cost liquidation experts. Our free, no-obligation phone consultations are available to answer all your questions, outline all options that are available to you and execute the best solution for your company moving forward.
Call now 1300 767 525 and speak directly to an expert!