What is liquidation?

October 5, 2018

Australia is a country of entrepreneurs and small business counts for more than 95% of all businesses. The sad fact is though, whilst it’s relatively easy to start a business in Australia small businesses are shutting at an alarming rate; more than 60 per cent of businesses cease trading within the first three years.

Firstly, let’s look at the differences between; liquidation, receivership, insolvency, and bankruptcy.

Insolvency – Insolvency is the financial status of a person and/or company that has debts that they are unable to pay. Without any corrective action liquidation or bankruptcy is the next step.

Bankruptcy – Bankruptcy refers to the financial status of a person/individual and not a company. A bankrupt person is unable to pay debts that are owing; all their assets will need to be sold in order to settle any outstanding creditors.

Liquidation – Liquidation is the process of winding a company down. The process of liquidation including selling assets and settles any affairs before the company no longer exists.

Receivership – If a company cannot meet their financial obligations the company can be placed in receivership, and the company is placed with a receiver.

 

How does liquidation work?

Liquidation of a company happens when it cannot pay its debts and receivership is not a realistic option.

When a liquidator is appointed their job is to sell all the assets and pay the creditors of the company.

When the process of liquidation takes place, the directors have no say in the process.

When a company does get to the point of liquidation it can mean different things to different people. Some people feel like liquidation is almost a relief, it brings a struggling company to an end and the directors can get on with their lives; however, some directors feel that there is a possibility of trading through the bad times, but the decision is taken out of their hands.

The liquidator’s role is to recover, realise and sell as many assets as possible and to inform creditors of the companies position and pay them accordingly, where possible.

The liquidator will place very little significance on the financial cost to the shareholders, their efforts are put into reimbursing the creditors, this includes: employees, businesses that have provided goods or services to the company.

During the liquidation process the directors must cooperate with the liquidators. The liquidators will also be looking for any evidence that the directors knew the company was in financial difficulty and this could result in legal action against the directors, personally.

 

Radich Lawyers on the Gold Coast

If you are having financial issues, don’t wait until it’s too late. A meeting with Radich Lawyers on the Gold Coast could be the best investment you make. With more than 30 years’ experience you can be assured you are in good hands. Call Radich Lawyers on 0412 763 602 and see how we can assist you.

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