A creditor who is owed over $2,000 by a company can apply to Court to have the company placed in liquidation.
The Court may also appoint a liquidator to a company as a result of an application made by a director or member (shareholder) of the company, the company itself, a provisional or voluntary liquidator, or the Australian Securities & Investments Commission.
The purpose of appointing a liquidator to an insolvent company is to have an independent and suitably qualified person take control of the company, investigate its affairs, determine whether any assets or funds may be available or recoverable to pay creditors and wind up the company in an orderly and fair way for the benefit of all creditors.
Role of the Liquidator
The liquidator of the company will determine the assets of the company (if any) and their value and take steps to realise any assets which are identified, if it is commercial to do so. In accordance with their duties, a liquidator will also conduct a review of the records and financial history of the company in order to investigate such things as:-
- The financial performance of the company;
- Whether any preference payments have been made to creditors, or uncommercial transactions entered into by the company, or other matters which may give rise to potential recovery actions by a Liquidator;
- Whether the company has traded whilst insolvent and the extent of any insolvent trading claim against the company’s director(s); and
- Any offences which ought to be reported to the Australian Securities & Investments Commission.
The liquidator will distribute the funds received from the realisation of a company’s assets, after payment of the liquidator’s costs, in accordance with the priorities set out in the Corporations Act 2001 (Cth), being generally:-
- Firstly (subject to some exceptions) payment to creditors who hold security over a company’s assets;
- Secondly in payment (either in full or in part) of unpaid employee entitlements; and
- Thirdly in payment of debts owed to ordinary unsecured creditors, with creditors being paid on a pro-rata basis based on the amount of their debts.
Director’s Duties and Obligations
A company’s director has the same duties and obligations during the period of a liquidation as the director had prior to the liquidator’s appointment. In addition, a company’s director must:-
- Provide the liquidator with a Report as to Affairs for the company;
- Provide all of the company’s books and records to the liquidator; and
- Reasonably assist the liquidator in carrying out his or her role.
Information and Advice Regarding Court Liquidation
If you would like to obtain further general information regarding liquidation you may wish to access our Liquidation FAQ page.