Liquidation means to dissolve a business, sell its assets and distribute the funds based on whether the business was solvent or insolvent. Liquidation situation occurs, when at a point it feels that the limited company cannot continue as it has no funds left to cover the debts. Liquidations mean turning the company’s assets into cash and pay different debts.
Why does a company determine to liquidate?
Insolvency is the main reason a company decides asset liquidation. Insolvency means a point, where the business cannot make their debt payments. If a company is a solvent, the directors will be able to control it but if it has run out of funds [insolvent], the control has to be placed in the hands of an experienced and licensed liquidator.
The professionals at Insolvency Experts are regulated and licensed. The team has been helping company directors and people across Australia, since 2006. If a company is assumed to be insolvent, the liquidator is responsible to evaluate the company assets, sell them and pay the creditors. If any amount remains after debt payments, it gets distributed among shareholders.
In theory, liquidation seems simple. However, there are three types and each one has its specific process. You need to understand the difference and determine which type of liquidation your company can opt for.
Member’s voluntary liquidation
When a business owner chooses to dissolve for some reason, then it is called a member’s voluntary liquidation. It means the business is capable to pay their debts on time but the partners or business owners chose to close.
Creditor’s voluntary liquidation
When an organization’s board of directors feels that the business is incapable to pay its debt they call shareholders meeting. There is a voting process conducted among shareholders. If the majority of votes account for liquidation [more than 75%] then the assets selling process starts.
The company has reached a point when they are not capable to repay their debts on time. The company director directly approaches the court with a request to implement the liquidation process.
For smooth navigation of the voluntary or compulsory liquidation process, it is crucial to look for experienced insolvency professionals. An only licensed liquidator is allowed legally to deal with several proceedings associated with the insolvency process like playing the role of voluntary company arrangement supervisor or a liquidator.
What are the responsibilities of a liquidator?
- Realizing the insolvent company’s assets and obtain the best possible rates.
- Address outstanding claims associated with the limited company. Repay the claims as arranged by the law.
- Distribute returns to the company’s creditors based on priority.
- Act in the best interest of creditors and not directors.
They also must investigate and legally help to restore the property, which has been unfairly disposed of. For example, business assets sold at prices lower than their market value. If a past or current director, who acted unfairly against the creditors can be litigated by the liquidator.
The charges of the liquidator are in the form of an hourly rate, fixed amount, or a percentage of assets realized. The payment level will be based on case complexity, extra responsibility, assets nature & value, and efficiency of the liquidator.