The Process of Voluntary Liquidation

When well-planned and soundly executed, most businesses tend to perform well. However, either due to mismanagement or economic factors, businesses sometime fall into hard times. Sales decline to the extent it barely covers or does not cover even the wage bill. Cash reserves are used and reduced to zero. When all management efforts fail to revive the business, rather than let it bleed, voluntary liquidation is the best legal option.

Voluntary Liquidation of a business is the orderly dismantling of the company property and resource to ensure a fair distribution of the company’s assets to its creditors. Voluntary liquidation also requires an investigation to be conducted to ascertain that the failure of the business and resultant losses to the creditors, staff and others was not caused as a result of mismanagement of the company resources.

In a voluntary liquidation, the members of board of the company, pass a resolution deciding to liquidate the company or business. Nobody forces them to do it. The core management team decided it to do it.

In an Involuntary Liquidation, the creditors approach the court which in turn goes into the merits of the complaint and on the basis of evidence presented, may decide to order the business to be liquidated and will also appoint a liquidator.

If according to the company’s finance experts, there isn’t enough cash reserves and even encashing some or all semi-liquid assets will not cover outstanding expenses and payments then, they will recommend voluntary liquidation of the business to the board. The board then passes the appropriate resolution.

Further, based on the finance experts recommendation, an external liquidator is selected and a resolution passed appointing the liquidator to begin and complete the liquidation process. Once the selected liquidator receives the communication and accepts the position, the management ceases to exist and the liquidator takes over everything. Of course, if the creditors of the company do not have faith the appointed liquidator, they can ask for a change.

There are two types of liquidators — liquidators who are registered with ASIC and liquidators registered with the Courts; these latter class can take court ordered liquidation. But both these types can accept voluntary liquidation appointment.

Once appointed, a liquidator will catalogue all assets of the business. The liquidator will not only go through the books to locate the assets, he or she will visit the premises and investigate if there are any uncatalogued assets. Once the list is finalized, reports are prepared and shared with the ASIC and the creditors of the business.

All these assets moveable and immoveable will be sold at the best price possible. Assets also mean recovering dues from debtors. Once the money is collected, the liquidator will derive a formulae on how the funds will be distributed. A meeting of the creditors will be held. If all creditors can be paid and there are still funds available, the shareholders will be informed and they too will receive a share based on a formulae. Finally, the liquidator will apply for deregistering the company. During all this, the Corporate Liquidator Sydney will also investigate if there was any mismanagement or misappropriation that resulted in the business going bust. One of the most respected liquidators in Australia is the