A company will commonly be placed in liquidation either voluntarily by its shareholders or by the Court, usually upon the application of one of its creditors. The most common creditor who makes applications to the Court to place companies in liquidation is the Australian Taxation Office (ATO) for unpaid tax debts.
The liquidation of a company is the orderly winding-up of its affairs by an independent person, the Liquidator. The Liquidator will:
- Sell or realise a company’s assets;
- Carry out investigations regarding the company, including investigating whether any recovery claims are available, such as claims for insolvent trading;
- Pursue any commercially viable recovery actions;
- Report to creditors; and
- Distribute any surplus funds available, after payments of cost, among creditors.
In some circumstances where a company owes a tax debt it is unable to pay, there is no alternative but for the company to be placed in liquidation. Sometimes this may actually result in the best outcome for a company’s directors as it may avoid directors’ liability under Director Penalty Notices or minimise claims which may be made for insolvent trading.