Insolvency & Liquidation
8. The Liquidation Process
Firm / Chambers:
Last updated: 11 Aug 2015
- Voluntary and involuntary liquidations operate in a similar way.
- Upon a company’s winding up in insolvency a liquidator is appointed to take control of the company so that its affairs can be wound up in a fair and orderly way. A liquidator is an independent and suitably qualified person who has signed a written consent to act in that capacity.
- Within 11 days of his or her appointment the liquidator must arrange a meeting of the creditors of the company.
- The meeting is convened by a report to creditors prepared by the liquidator that advises their appointment and the circumstances surrounding it.
- At this meeting the company’s creditors may resolve to:
- replace or confirm the liquidator;
- approve the liquidator’s remuneration; and
- appoint a ‘committee of inspection’.
- After the initial creditors meeting the liquidator may arrange further meetings of creditors as needed depending on the size and scale of the liquidation and the issues to be considered. However the liquidator is only required to hold an annual meeting and a final meeting of creditors upon the conclusion of the winding up.
- Any creditor whose claim has been admitted partially or fully by the liquidator for the purpose of voting can vote at a meeting of creditors.
- All resolutions are made on the voices by creditors attending in person or by proxy.
- However where this outcome is unclear or where requested by a creditor the vote is put to a poll.
- all legal action against the company is put on hold or ‘stayed’ unless court approval is obtained;
- shareholders are unable to transfer shares; and
- unsecured creditors are unable to enforce their rights against company property.
- During the liquidation the liquidator can disclaim onerous property. This could be:
- an unprofitable contract; or
- a lease where the company is the tenant and cannot easily fulfil its obligations.
- It is expected that the liquidator will:
- locate, protect and sell all the assets of the company;
- conduct and sell any business of the company;
- carry out investigations into the company’s financial affairs and any suspicious transactions and make appropriate recoveries;
- prepare and provide the required reports to ASIC and the company’s creditors;
- make a distribution or pay a dividend to creditors if possible; and
- apply to ASIC for the company’s deregistration.
- Liquidators are given significant powers under legislation to assist them with their role including the powers of a company director.
- Creditors must establish their claim to a dividend by lodging a ‘proof of debt’ with the liquidator.
- Creditors with ‘proved’ claims are entitled to a dividend made in accordance with certain rules of priority but otherwise on the basis that all creditors are entitled to share equally.
- Following distribution to creditors the company is deregistered and ceases to exist as a separate legal entity.
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