When liquidation may be the best course of action for your business
There are several reasons why businesses find themselves in financial difficulty. It can be from poor cash flow as a result of adverse economic conditions, unfavourable legal action being taken against the company, ATO debt issues or unpaid creditors being some of these reasons.
Regardless of what the matter may be, there are several options available to deal with your debt concerns. However, sometimes these solutions include winding down your business by going into the voluntary administration or liquidation processes.
We, at the Bankruptcy Advisory Centre Pty Ltd have the experience to guide you through these processes and take the burden off your shoulders!
We encourage you to call us at 1300 887 210 for a complimentary, no obligation chat to discuss the right solution for your specific situation.
Liquidation explained simply
Liquidation is the process of winding up and finalising a company’s financial affairs. Under usual circumstances, a company is placed into liquidation because the company cannot pay all of its debts (i.e. it is insolvent). The purpose of liquidation of an insolvent company is to have an independent and suitably qualified person (the liquidator) take control of the company so that its affairs can be wound up in an orderly and fair way for the benefit of all creditors.
What is the different between voluntary administration and liquidation?
Voluntary administration, via an appointment of an external administrator, usually takes place when there is a possibility of being able to ensure the continuance of the company’s existence and is a type of formal insolvency process that is intended to resolve a company’s financial debt situation as quickly as possible to maximise returns to creditors. However, a liquidation is a type of insolvency that is intended to wind up the company and its affairs. If voluntary administration fails, legally it requires the winding up of the company.
Is Liquidation the best choice for my business debts?
Business debt issues are usually complicated and there is no one right answer to deal with all business debt issues. The options available to you and your company will change depending on several factors, including:
- Is your business still currently in operation?
- What is the structure of the business (sole trader, partnership, company or trust)?
- What are the debt levels that your business is currently facing?
- Are there any assets in the business?
- How employees are involved in the business?
- Does the business have any adverse legal action pending; and
- The outcome the business as well as yourself would like to see.
Liquidation is the only way to fully wind up the affairs of a company and end the existence of the company. An independent party such as the liquidator undertakes the process and protects the interests of creditors, directors and members while the company structure is dismantled.
How can an insolvent company be wound up?
An insolvent company can either be wound up
- Compulsory by the court, usually when one or more creditors make an application to the courts, or
- Voluntarily by resolution of the company directors to end the existence of the company.
What else can I do to clear my business debts?
There are several options available to assist you to clear your business debts. There are also mechanisms in place to ensure any legal action against your business ceases and that employees get paid their outstanding entitlements through a government scheme even if the business does not have the money to pay them.
Please note that there are only some of the indicators for you or your company to consider in determining whether your company needs to be liquidated and directors will require appropriate advice, from qualified professionals.
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