Court-Appointed Liquidations

Court-Appointed Liquidations

Creditors are entitled to take proceedings against you if you owe over $2,000 dollars and the account is outside their trading terms. Solicitors will advise the creditor to apply to Court to seek a judgement then apply to have the company wound up and a liquidator appointed. Note that in the case of the ATO they nominate who the court should appoint.

A director or member (shareholder) of the company can, should a dispute between members occur, apply to the Court to have a provisional liquidator appointed.

A liquidator, once appointed to an insolvent company, take control of the company, investigate its affairs, determine whether the director is trading while insolvent, send requests to every financial institution asking if you have ever had or still have accounts with them. The Liquidator also writes to all financial software providers asking if you use their products and request copies of all financial reports, the Liquidator does this so that they can recover any assets or funds they consider void or preferential. All recoverable assets and funds are used to pay creditors of a wound-up company and from those funds seeks creditors approval to pay the liquidators fees and any ongoing investigations.

Role of the Liquidator

The liquidator of the company will determine the assets of the company (if any) and their value then take steps to realise on the assets. In accordance with their duties, a liquidator will also conduct a review of the records and financial history of the company in order to investigate such things as:

  • Did the director trade knowing he could not pay his accounts when they feel due;
  • Did the director make any preferential payments to creditors, which give rise to potential recovery actions by a Liquidator;
  • Did the director take drawings instead of wages, which allows the Liquidator to recover all drawings against the company’s director(s); and
  • Did the Director keep proper books and records, if not then that offence, will be reported to the Australian Securities & Investments Commission
  • Did the director allow for any related loans between entities, if yes then the liquidator will claw those funds back and or the liquidator will apply to the court to Liquidate that entity.
  • It is important to note that staff entitlements rank first, then any creditor holding security, or a judgement debt are next (subject to some exceptions) to receive payment.
  • Thirdly are payments of debts owed to unsecured creditors; note creditors are only paid on a pro-rata basis of their debts.

The liquidator will distribute the funds received from the realisation of a company’s assets, after payment of the liquidator’s costs, in accordance with the priorities set out in the Corporations Act 2001 (Cth), being generally:

Director’s Duties and Obligations

A company’s director must assist the liquidator with any requests the liquidator makes of him and failure to do so will be reported to the Australian Securities And Investment Commission, who will take steps via the court to prosecute the Director. The Directors duties and obligations during the liquidation are the same as they were prior to the liquidator’s appointment. In addition, a company’s director must:

  • Provide the liquidator with a (ROCAP REPORT) RULE 507 of the corporation’s ACT about the company and complete a liquidator’s questionnaire;
  • Provide all books and records in his possession and arrange for any not in his possession to be forwarded to the liquidator; and
  • Reasonably assist the liquidator and his staff in carrying out his or her role.