If a creditor of your company is owed money, they can take legal action to have your company wound up by way of a Court Liquidation. A statutory demand arriving in the mail is the first sign a winding up application has been filed and you may only be weeks away from having a liquidator appointed to your company.
If you are facing a winding up application, it is essential that you seek urgent advice to understand this process and the options available to save your company, or its business.
What is Court Liquidation?
Court Liquidation is an involuntary liquidation process where a creditor or shareholder, among other parties, apply to court to commence the winding up of your company. Most Court Liquidations are commenced by a creditor. Commonly this occurs where a company has not paid an amount demanded under a Statutory Demand.
How does Court Liquidation Work?
Court Liquidation starts with a creditor issuing a Statutory Demand for payment. Your company is required to pay the creditor’s debt within 21 days. If you fail to make this payment, the company is then presumed insolvent and the creditor may apply to the court to wind up your company. Once the court date arrives, the Judge will hear from both parties and may decide to appoint a registered liquidator to your company.
Why Has Your Company Been Ordered into Court Liquidation?
Some of the reasons why your company might be ordered into Court Liquidation may be because:
- Your company is insolvent
- The director/s of your company have acted in their own interests, rather than in the interests of the shareholders
- The affairs of your company are being conducted in a manner that is oppressive or unfairly prejudicial to one or more shareholders
- The court has considered that the interests of the shareholders, creditors or the public are best served with this order
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How Does a Court Liquidation Affect Your Business?
In the event of a Court Liquidation, the liquidator assumes full control of the company’s affairs. This includes taking possession of the company’s assets and displacing the directors. A Court Liquidation ensures that an independent person, the liquidator, is appointed to administer the affairs of the company in a fair manner.
The Liquidator’s Role
The Liquidator who is appointed by the court to your company has duties to:
- Identify, collect and sell the assets of the company,
- Advise creditors and other parties or the liquidator’s appointment and respond to their queries,
- Investigate the company’s affairs to identify – and if commercially viable – pursue claims against the directors and various parties in respect of insolvent trading, uncommercial transactions, unfair preference claims and other claims available to the liquidator,
- Report to creditors on the liquidator’s findings and distribute a dividend to creditors if there are sufficient funds recovered to do so,
- Complete various statutory reports and lodgements with the Australian Securities and Investments Commission (ASIC) regarding the directors’ conduct and other matters, and
- Once all matters have been finalised, request ASIC to deregister the company.