Author
Grahame WardDirector & ASIC Registered Liquidator
If your business is under financial pressure, thinking about Liquidation can feel overwhelming. You may have questions about what happens next and what the Liquidation process could mean for your business, employees and creditors.
If you understand how the Liquidation process works step by step, you can approach each stage with a clearer sense of what happens and what you may need to do.
How Does The Liquidation Process Work In Australia?
The Liquidation process in Australia follows six key stages. The timeframe can vary depending on your company’s circumstances and the type of Liquidation involved.
Once appointed, a registered liquidator manages the winding-up process under the Corporations Act 2001, including required notices and lodgements with the Australian Securities and Investments Commission, or ASIC. Some stages can overlap depending on your company’s circumstances.
The Six Stages Of The Liquidation Process
Watch the video below for a clear look at the Liquidation process step by step, from appointing a registered liquidator through to deregistration.
Step 1: Meeting of Shareholders
Directors first assess the company’s financial position, including its assets, liabilities and ability to pay debts when they fall due. In a Creditors' Voluntary Liquidation, or CVL, shareholders then resolve to wind up the insolvent company and appoint a registered liquidator. This begins the formal winding up process.
Once the winding up resolution is passed, ASIC must be notified. Form 205 is lodged within seven days, and notice of the liquidator’s appointment is published by the end of the next business day. The liquidator also lodges Form 5604 with ASIC within 10 business days of the shareholders’ meeting. Your liquidator will manage these lodgements and explain what you need to provide.
Step 2: Appoint a Liquidator
If Liquidation is the appropriate pathway for your business, an ASIC Registered Liquidator is appointed to independently manage the external administration and Liquidation process. They’ll explain what information they need from you, what responsibilities remain with you as a director and what happens next.
In a CVL, the registered liquidator must lodge Form 505 with ASIC within 14 days of their appointment. Mackay Goodwin has 12 ASIC-registered specialists across its national team, so you can speak with an experienced practitioner about what the Liquidation process involves for your company.
Step 3: Sign Appropriate Documents
Directors and shareholders must complete the necessary documents to formally appoint a registered liquidator. You’ll also need to provide the information and records required for the liquidator to begin their work.
- The company’s books and records must be provided.
- Information about the company’s financial position must be supplied.
- You’ll need to complete the Report on Company Activities and Property, or ROCAP.
Your liquidator will give you a clear list of what they need. You complete the ROCAP and return it to them, and they lodge Part A with ASIC as Form 507 within 10 business days of receiving it. If anything’s unclear, ask early.
Step 4: Assess Assets
The liquidator builds a clear picture of the company’s position by assessing the company’s assets and liabilities, including property, inventory and intellectual property. They also prepare information about the company’s affairs for creditors and provide process updates. Creditors generally receive a statutory report within three months of the liquidator’s appointment, which outlines key information about the Liquidation and its progress.
The registered liquidator may also investigate the company’s affairs, including possible insolvent trading and transactions that could lead to recovery actions. One example is an unfair preference, which is a payment to a creditor that may be recoverable if the legal requirements are met. The company’s books and records, assets and liabilities, along with any investigations or recovery actions, can affect how long this stage takes.
Step 5: Sell Assets and Distribute Proceeds to Creditors
Once company assets have been realised through sale or other recovery actions, the liquidator distributes available funds to creditors according to legal priority rules. The amount available depends on the company’s liabilities, the rights of secured creditors, the liquidator’s fees and other Liquidation costs, and valid creditor claims from unsecured creditors.
The liquidator becomes the main point of contact for secured and unsecured creditors and keeps affected parties informed as the Liquidation process progresses. There is no fixed statutory timeframe for selling assets or making creditor distributions. The timing depends on how the Liquidation progresses and when the necessary steps are completed.
Step 6: Deregister the Company
Deregistration is the final stage of the Liquidation process. Before a company is deregistered, the liquidator completes the required reporting and finalises the remaining steps in the Company Liquidation process.
The liquidator then lodges the End of Administration Return, Form 5603, with ASIC, generally within one month of the administration ending. ASIC will usually deregister the company three months after the return is lodged, at which point the company legally ceases to exist.
A Liquidation typically takes around 6 to 12 months, although complex assets and liabilities, investigations, creditor claims or recovery actions can extend the timeframe.
Which Type Of Liquidation Applies To Your Company?
There are five main Liquidation pathways. The right one depends on the company’s financial position and circumstances.
- A Creditors' Voluntary Liquidation, or CVL, allows shareholders to wind up an insolvent company and appoint a registered liquidator.
- Court Liquidation, also known as court-ordered Liquidation or compulsory Liquidation, begins when a court makes a winding-up order, often following an application by a creditor. A creditor may seek that order through a winding-up application, which can follow an unpaid statutory demand.
- A Members' Voluntary Liquidation, or MVL, is available to solvent companies and requires a declaration of solvency.
- The Simplified Liquidation process may be available to eligible small companies in a CVL that meet the eligibility criteria. It has reduced investigation, reporting and meeting requirements.
- Provisional Liquidation is an interim court process where a provisional liquidator may be appointed before the court decides whether to wind up the company.
If your company is facing financial distress, the right pathway will depend on its financial position and circumstances. Small Business Restructuring may be another option for an eligible business. Mackay Goodwin can assess your position and explain if Liquidation, Receivership or another corporate insolvency pathway may be appropriate. Speak to our team today to book a free consultation.
FAQs
What Happens To Employees During Liquidation?
Employees are priority unsecured creditors for certain unpaid employee entitlements, including wages, superannuation and leave. The registered liquidator assesses these entitlements and keeps employees informed throughout the Liquidation process.
How Long Does The Liquidation Process Typically Take?
The Liquidation process typically takes around 6 to 12 months. Complex assets and liabilities, creditor claims, investigations, recovery actions or legal proceedings can extend the timeframe. The registered liquidator will keep creditors informed as the process progresses.
Is Voluntary Liquidation Better Than Compulsory Liquidation?
Neither pathway is automatically better. In a CVL, shareholders wind up an insolvent company and appoint a registered liquidator, while compulsory Liquidation follows a court order, often after a winding-up application.
Are Directors Liable For Company Debts?
Directors are not generally personally liable for company debts simply because a company enters Liquidation. However, personal liability can arise in some circumstances, including insolvent trading, personal guarantees or specific tax liabilities. If you’re concerned about personal liability, getting advice early can help you understand your responsibilities as a company director and the options available to you.
What Happens To Creditors During Liquidation?
Creditors are notified of the Liquidation and receive updates from the registered liquidator. Secured creditors may have rights over secured assets, while unsecured creditors may receive a distribution after the liquidator's fees, Liquidation costs and priority employee entitlements are dealt with. A meeting of creditors may also be called depending on the circumstances.
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