Winding up a business requires the liquidation of all that business’ assets. The reason for winding up a business could either be that the company is insolvent (can’t pay all of its debts) or its members want to end the company’s existence.
How to Liquidate your Business
How do you wind up a business?
Liquidation is the only way to fully wind up (end) the operations of the company whilst breaking down the company’s structure, undertaking appropriate investigations and paying all of its debts. Having an independent party undertake the liquidation process protects creditors’, directors’ and members’ interests.
If your company is insolvent it will either be wound up by its members and creditors voluntarily or involuntarily as a court order (court liquidation) because the business has not been able to pay one or more creditors, and the period of non-payment has been longer than the legal time allowed.
Even though a company may have a large number of assets it can still be deemed to be insolvent because the directors are unable to liquidate these assets quickly (e.g. a building/land).
Solvent companies can also be wound up by the Court on an application by its directors or members. This usually occurs when there is a conflict in the leadership of the company and the parties are unable to resolve that conflict or cannot agree to appoint a liquidator voluntarily.
Who winds up a company?
Liquidators are the ones who actually wind up the business; they are specialist accountants. A liquidator will have the same level of powers as the directors and can examine directors and employees, sell assets, identify void transactions, pay debts and distribute any leftover monies to shareholders. The directors cease to have any authority. All bank accounts are frozen, all employment can be terminated, but necessary labor may be rehired by the liquidator. Once they are finished they will report to the ASIC and deregister the company. Generally a company will still trade whilst in liquidation so that it is easier for the liquidators to sell.
What do directors need to do?
The directors must supply all of the information about the company’s affairs and provide a Report detailing the assets and liabilities of the company and a Director’s Questionnaire. The directors must also deliver all company books and records and cooperate with the liquidator throughout the liquidation. Should directors not co-operate they may be penalised.
Can a liquidator attack the director’s personal assets?
No. The liquidator can only take possession of the company’s assets. However, if the liquidator can prove that company assets have been taken by the directors, the liquidator may recover those assets. If the company has loaned money to the directors, the liquidator will seek to recover these monies.
If the liquidator can prove an insolvent trading claim against a director, he may make that director personally liable to compensate the company and, if necessary bankrupt them. This will allow a trustee in bankruptcy access to the director’s assets to satisfy the claim of the liquidator.
What is the effect on personal guarantees?
Personal guarantees executed by directors and other parties are not affected by liquidation, as a guarantee is an arrangement between the creditor and the guarantor personally.
How long does the liquidation last?
There is no set time limit. The liquidation lasts for as long as is necessary to complete all of the tasks, but the liquidator will usually try to finalize the liquidation as soon as possible.
How does the liquidation end?
The liquidation ends when either:
(a) the company is dissolved by Court Order on the application of the liquidator;
(b) the company is struck off the register of companies by the ASIC; or
(c) the winding up is set aside or stayed by the Court.
If you are looking to wind up a business, we at the Quinn Group are able to help you. For more information on liquidation, contact us on 1300 QUINN or click here to submit an online enquiry.
