Company liquidation in Australia takes place when a business can no longer pay the debts it owes to its creditors or when the founding members jointly decide to end its activities.
There are two types of liquidation, voluntary or mandatory, but there is also an intermediate phase, called company administration, which is not essentially a liquidation process but rather an attempt to save the company. When the company is dissolved and liquidated, it will also be removed from the Business Register.
Our team of lawyers in Australia has worked with companies in financial difficulty and has strived, in each case, to find the most suitable solution to this process.
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What are the liquidation types?
Company liquidation in Australia can be voluntary or mandatory. Below, our attorneys in Australia describe the existing types:
- voluntary member’s liquidation – when the members of a company are the ones who freely decide to terminate the business;
- creditor’s voluntary liquidation – when the liquidation is decided by the director and the shareholders for the purpose of paying the debts to the creditors;
- official liquidation – when the termination of the company is ordered by the Court;
- provisional liquidation – when the Court grants a period of assessment and appoints a liquidator.
It is important to note that the members’ voluntary liquidation can commence when the company is solvent. One of our lawyers in Australia can give you more details on when this process is preferable.
When is liquidation needed?
Liquidation can be a suitable solution to terminate a business that is insolvent. In fact, it can help protect the company director from personal insolvency. A company that enters into liquidation transfers the management of its assets to an appointed liquidator who will then handle the process of distributing the owed amounts to the creditors and then, if any remain, to the shareholders.
Simplified liquidation in Australia
Starting with 2020, investors can wind up a company in Australia following a simplified version of the liquidation process. This can be done only in certain circumstances, prescribed by the law. Our Australian law firm has prepared a short list containing the main criteria for simplified liquidation:
- it applies to companies that have liabilities with a value below $1 million;
- it can be initiated only by companies that initiated the procedure after the date of 1st January 2021;
- an assessment shows that the company can’t fully repay the debts in a period of 12 months;
- the company has provided all its financial documents to the liquidator as stated by the Income Tax Assessment Act 1997;
- the procedure must be initiated in maximum 20 days after the liquidator was appointed.
There are many conditions to comply with in order to close a company in Australia through the simplified liquidation. For instance, it can only apply to creditors’ voluntary winding up. Additionally, in maximum 5 days from the adoption of the decision to voluntarily wind up a company in Australia, the company’s directors must present the liquidator specific documents.
They need to submit documents that attest the true financial image of the company, up-to-date and a written declaration in which they declare that there are reasonable grounds to close a company in Australia by initiating the simplified liquidation.
The procedure for adopting the simplified company liquidation in Australia
Please know that the term simplified liquidation does not imply that the procedure will be an easy one. It involves many steps, documents and forms and plenty of formalities, therefore the assistance of our lawyers in Australia is recommended.
For instance, before the adoption of this liquidation system, the appointed liquidator must formally prepare 6 different Forms (Form 205, Form 505, Form 507, Form 5604, Form 509 and Form 531). These documents must be reviewed by the Australian Securities & Investment Commission (ASIC).
After this, one can close a company in Australia following the simplified liquidation route. Please know that during this process, the company may be rejected from terminating its existence through the simplified route, as various documents may show that, in the end, the company did not qualify for the simplified liquidation.
This is due to the fact that at the moment when the investors decide to wind up a company in Australia through the simplified system they establish this based on having reasonable grounds, but not necessarily full proof of the company’s qualification for this procedure.
After specific processes, the institutions and the appointed liquidators will determine the nature of the procedure. Companies located in Sydney can be represented in this process by our lawyers in Sydney. We can also represent our clients in any other major Australian city.
How can our team of attorneys in Australia help?
Our team of Australian lawyers can help with adequate counseling when choosing the appropriate type of liquidation and during the process. Our attorneys can help company directors not only understand all the steps but also how and if the liquidation affects their personal credit ranking. For more information about liquidation, please do not hesitate to contact our law firm in Australia.