Court Ordered Liquidation

Liquidation is the process whereby the assets of a corporation are realised in an orderly manner and the proceeds distributed among creditors of the company in satisfaction of their claims against the company. Any surplus funds are returned to members.

The Court may order that a company be wound up in insolvency or on certain other grounds.

A winding up in insolvency is generally sought by a creditor following failure by the company to comply with a statutory demand for repayment of debt. Historically, the failure to pay a debt has been the most common ground for application to the Court for a winding up order, although other classes of person also have standing to apply for a winding up in insolvency.

An applicant for a winding up order is required to obtain the consent of a liquidator prior to the hearing of the application. In the absence of any conflict of interest and subject to any submissions by the parties, the Court will usually appoint the applicant’s nominee to be liquidator should a winding up order be made.

The liquidator’s powers are codified in the Corporations Act 2001. The liquidator is charged with the realisation or disposition of the assets of the company for the benefit of creditors generally. The liquidator owes no special duty to the creditor or party who made the winding up application.

The liquidator is required to investigate the affairs of the company to determine whether the company or its officers had committed any fraud, negligence, misfeasance, breach of duty or trust or any other breach or offence in relation to the management of the company. If so, the liquidator is required to report to the Australian Securities and Investments Commission.

The liquidator’s investigation may also disclose certain actions which may be available to the liquidator – such as recovery of insolvent transactions or potential litigation e.g. for negligence and/or breach of duties by directors and officers.

On finalisation of the liquidation, and distribution of all funds, the company will be deregistered and cease to exist.

A liquidator (or provisional liquidator) can also be appointed by the Court in solvent scenarios, for instance, there is an irreconcilable dispute between shareholders on inter alia “just and equitable grounds”.

Our principals have years of experience acting as court appointed liquidators and are best placed to advise you if you have received a winding up summons.

Determining insolvency can be complicated, use our self-evaluation questionnaire to determine whether you are experiencing signs of insolvency.

For more information on the court liquidation process, please contact us to arrange an immediate initial interview without obligation.