What You May Need To Know About The Process Of Liquidation


Have you been unfortunate to encounter financial difficulties in your business? Sometimes, these difficulties can seem overwhelming, and you may want to know if liquidation is viable. So, what's involved with this process, and how can you set the ball rolling?

Understanding Liquidation

Liquidation is the process of winding up a company's affairs, which includes selling its assets and using the proceeds to pay off any outstanding debts. Any remaining funds are then distributed to shareholders or creditors. This process can be undertaken voluntarily by a company or forced by creditors or other stakeholders.

Types Of Liquidations In Australia

There are two types of liquidations in Australia – voluntary administration and compulsory liquidations. Voluntary administration occurs when a company voluntarily applies for an external administrator, who will assess the situation and determine whether the business should be restructured or wound up altogether. Compulsory liquidations occur when creditors force a company into liquidation due to unpaid debt or other issues.

What Happens During A Liquidation?      

During a liquidation process, an external administrator will be appointed to manage the winding-up procedure. The administrator will collect all assets from the company, including anything that can be sold, such as property or equipment. They will also investigate any potential legal claims against the business and ensure that all employees are paid their entitlements before any other payments are made. Once all outstanding debts have been settled, any remaining funds will be distributed between creditors and shareholders according to their rights as outlined in the law.

The administrator will also report on their findings during this procedure — this report is used by stakeholders to assess whether or not further action needs to be taken (e.g., filing for bankruptcy) once the liquidation has been completed.           

How Difficult Is This Process?

It's important to note that while liquidations can often seem daunting, they provide companies with an opportunity to start fresh with fewer liabilities than before. This means that if they are done properly, there's potential for growth in future years.

What To Do Next

Remember that liquidation is not always the answer, and there may be other solutions for you to consider. So, before you decide how to proceed, make sure that you discuss the situation with an experienced accountant. They will then take a close look at your current affairs and outline some options. Armed with that information, you'll then be able to make an informed decision.

Contact a service such as Menzies Advisory to find out more.


15 February 2023

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