September 29, 2023

What is the Insolvency and Liquidation Process for Corporations in Perth?

Individuals or companies experience insolvency because they experience a level of monetary stress and cannot meet all the monetary commitments. The business settlement lawyers in Perth have said that insolvent trading in Australia is completely illegal.

Based on the Corporations Act, one might end up facing penalties for conducting trading insolvent, which includes situations where the company directors might be liable personally.

When one believes that his/her business is not solvent anymore, it’s vital for them to enter the liquidation process as it’s the best option available for them.

Understanding the Importance of Liquidation

One will come across many types of insolvencies, and out of them, “LIQUIDATION” is one of the best options for all the corporations out there. The process of liquidation is referred to as winding a business’s affairs under Australia’s Corporations Act.

In general, the process includes breaking down the structure of the company in an order and then appointing a liquidator to inspect the affairs of the company. The assets of the company are sold out to pay all the debts.

Even though the business’s structure will survive perfectly during the process of liquidation, once it’s completely finalised, the business will dissolve.

During the liquidation process, all the conduct of the business, control of assets, and various other monetary affairs will be transferred to the liquidator.

When a company goes under the liquidation process, the unsecured creditors cannot continue the legal action or instigate against the company. They can only do so when the court gives them permission to do so.

Besides that, the creditors will also have a wide range of entitlements to recover from all the debts as much as they can.

Why It’s Important to Enter into the Liquidation Process?

There are countless reasons why corporations want to enter the liquidation process. This particular process stands out as an ideal option for both solvent and insolvent firms. A company is viewed as insolvent when:

  • They are finding it difficult to meet all the tax obligations, such as company tax, etc.
  • Cannot recover the funds that they owed
  • Experiencing creditors harassing for all the payments.

When the company keeps on trading while there is insolvency, the director will be at a high risk of breaking the insolvent trading laws, which will lead to serious consequences. The experts of liquidation company law in Perth have also said that many companies view liquidation as a way to reduce the stress of operating an insolvent business.

The liquidation process will protect the directors from receiving a DPN [Director Penalty Notice] from the Australian Tax Office [ATO].

What’s the Process of Liquidation for Companies?

Based on the company liquidation rules in Perth, the liquidation of a company is equipped with many steps, which are mentioned under the Corporations Act.

When a business is completely solvent [can pay up all the debts], it can get wound up by the resolution and its respective shareholders. But if the company is facing insolvency [cannot pay up the debts], they should follow these steps:

  • Step 1: The secretary or directors of a company should conduct a meeting with all the shareholders and resolve whether the business is insolvent. 
  • Step 2: All the shareholders must appoint the liquidator. The appointment of a liquidator should receive 75% of the approval. 
  • Step 3: The Liquidator should not call in for a creditor’s meeting but rather should lodge the progress report with the ASIC. The progress report should contain the estimation of the liquidation, dealings and acts of the liquidator, and many other things. 
  • Step 4: The liquidator should also ask the creditors whether or not they want to appoint the committee for investigation. The committee will guide the liquidator and also approve all the fees. 

One can also consult the matter with the company liquidations lawyers in WA, to have a complete understanding of the liquidation process. They can also guide him/her on such matters and let them know what’s the first thing they should do.

How Can the Liquidator Help During the Liquidation Process?

One must appoint an independent and skilled liquidator to take care of the liquidation process. Doing so will ensure that the shareholders, directors and creditors are well-protected.

According to the lawyers from the law firm liquidation in Perth, the liquidator will do the following:

  • Inspect all the company’s affairs
  • Retain and interact with all the creditors, suppliers, and staff on the liquidation process
  • Realise, protect, and find all the company’s assets.

When assets are available after covering the liquidation cost, the liquidator must distribute the proceeds to all the unsecured creditors, employees and secured creditors.

Unhappy with the Closing Process: What Can Creditors Do? 

All the creditors have the full right to obtain information from the liquidator whenever they want during the liquidation process. But the “request” to get the information should be relevant, should not breach the responsibilities of the liquidator and is completely reasonable.

The liquidator should provide the creditor with the information they need within 5 days. If the liquidator needs more time to provide the information, they should do so in writing and request the creditor to extend the time period.

The creditors must also offer the liquidator with all the directors to the liquidation process. The liquidator does not have to follow the directions, but if they want to do it, they have to document that in writing and provide all the valid reasons.

The creditors also have the right to conduct the creditor’s meeting to get an update on the liquidation process. They can also place their votes in the meeting if they wish to change the liquidator and bring a different one.

In Liquidation, Who Gets Paid First?

During the liquidation process, every party wants to know who the ones will be getting paid first. Here are the following parties who are likely to get paid first from the company’s assets.

1. Secured Creditors 

The ones who have proprietary claims over the corporation’s assets also have priority over the unsecured creditors. That way, they will not be negatively affected.

It’s pretty typical for all the secured creditors to permit the selling of the assets till the liquidator gets to recognise their respective claims.

2. Priority Creditors 

The priority creditors are a type of unsecured creditors who should be paid way ahead of others. In other words, these creditors must receive their payments before the employees of the company.

3. Unsecured Creditors 

In general, it’s not possible for all the unsecured creditors to opt for any other ways to recover their debts. A diverse range of claims gets considered before theirs, which includes compensation for insolvent trading, unpaid calls on the shares, and many more.

4. Shareholders 

The shareholders are the last ones to get paid for the company’s assets. They will only get a return when all the creditors and the liquidator are completely paid.

What Happens After the Liquidation Process?

Director of the liquidator firm, the first thing one must do is that he/she is not alone in this process. It’s crucial for the directors to stay well aware of the legislative modification as they might offer some extra options.

This includes all the safe harbour provisions, which are designed to offer all the directors more time while protecting them from personal liability for insolvent trading. For more information, one can speak with the

Ending Note 

Insolvency can take place in any type of company, whether they are small, big or medium-sized. But when it does occur, entering the liquidation process can certainly be an ideal option. It will be much better to consult with the Business Settlement Lawyers Perth, who can offer their guidance and also provide legal advice on such matters.