If your business in Australia goes into liquidation, it means it’s unable to pay its debts and must cease operations. The process involves winding up the company and distributing its assets to creditors. Here’s a general outline of what happens during liquidation:

1. Appointment of a Liquidator

• Initiation: Liquidation begins either voluntarily by the company’s directors or involuntarily by its creditors through a court process.
• Liquidator’s Role: A liquidator, who is a licensed insolvency practitioner, is appointed to take control of the company.

2. Ceasing Operations

• Stopping Business Activities: The company stops trading and conducting business activities.
• Employees: Employees are usually dismissed, and the liquidator handles their final pay and entitlements, including outstanding wages, superannuation, and leave entitlements.

3. Asset Assessment and Realisation

• Asset Inventory: The liquidator assesses and makes an inventory of all the company’s assets.
• Selling Assets: These assets are then sold off to convert them into cash. This includes physical assets, intellectual property, and any outstanding debts owed to the company.

4. Creditor Claims

• Claims Submission: Creditors submit their claims to the liquidator.
• Verification: The liquidator verifies each claim against the company’s records.

5. Distribution of Proceeds

• Legal Order of Payment: The proceeds from the sale of assets are distributed to creditors in a legally defined order:
  1. Costs of the liquidation, including the liquidator’s fees.
  2. Outstanding employee wages and superannuation.
  3. Unsecured creditors.

6. Reporting and Investigations

• Reporting: The liquidator prepares reports for creditors, outlining asset sales, money recovered, and distributions.
• Investigation: The liquidator also investigates the company’s affairs and reports any unlawful activity, like insolvent trading, to ASIC (Australian Securities and Investments Commission).

7. Deregistration

• Final Step: After all assets are liquidated and funds distributed, the company is formally deregistered with ASIC, ceasing its existence as a legal entity.

8. Impact on Directors

• Personal Liability: Directors might be held personally liable if found guilty of wrongful trading or breach of directorial duties.
• Future Restrictions: Directors of liquidated companies may face certain restrictions, including limitations on managing other companies.

9. Tax and Legal Obligations

• Final Tax Returns: The company must lodge final tax returns and pay any owed taxes.
• Record Keeping: The liquidator maintains the company’s records for a prescribed period.

Liquidation marks the end of a business and can be a challenging and emotional process for everyone involved. It’s a legal procedure that ensures the orderly winding up of a company, with the aim of providing a fair distribution of assets to creditors. It’s important for directors to seek legal and financial advice as early as possible when facing insolvency.