What is Company Liquidation?

What is Company Liquidation?

Company Liquidation involved the sale of company assets through a company’s winding up process. The purpose of liquidating an insolvent company is to have an independent and suitably qualified person (the liquidator) take control of the company so that its affairs can be wound up in an orderly and fair way for the benefit of all creditors.

Ideally, you should commence Company Liquidation as soon as it comes to your attention that your company is insolvent.  If you don’t then you are risking a breach of Insolvent Trading laws, which is a criminal offence.

Alternatively your company members may agree to commence Company Liquidation voluntarily even though the company is solvent.

There are several kinds of liquidation:

  1. Official Liquidation – The application for Company Liquidation is made to the court by creditors of the company. In order for official liquidation to commence, the creditor/s must verify to the court that the company is insolvent (unable to pay its debts as and when they fall due). The Company Liquidation is initiated and an official Liquidator is appointed. The Liquidator will conduct thorough research into the financial affairs of the company in order to distribute these assets and ascertain whether or not illegal/improper activities have taken place.
  1. Provisional Liquidation – If the court considers that the assets or financial resources of the company may be at risk during the interim time that lapses between filing of the application and and the time of the court hearing, a provisional Liquidator may be appointed to administer and exercise control of the company in order to protect the best interests of the creditors and higher-end distributions. Provisional liquidation will often be executed to ensure that creditors are compensated as close to full satisfaction of arrears as possible when the official liquidation commences.
  1. Creditors Voluntary Liquidation (CVL) – A CVL occurs when a business is no longer able to pay its debts as and when they fall due, and the shareholders come to an agreement under a special resolution that the company is to be wound up. The company must be insolvent in order to perform a CVL. Once a company becomes insolvent it may be the only option to satisfy the debts in a feasible manner and without waiting for the Company Liquidation to be appointed by the court, which would result in an official liquidation.
  1. Members Voluntary Liquidation (MVL) – An MVL occurs when the company is solvent, and the directors/shareholders simply agree to cease trading of the company, wind up its affairs and liquidate the structure and assets to completely dismantle the company.