Court Liquidation – an overview
An Official Liquidation , sometimes called a “Court Liquidation”, is an appointment made by a Court. Commencement of winding up by the court may be started by creditors, directors or shareholders. Most Official Liquidations are commenced by a creditor of a company and the most common reason for winding up proceedings to be started is the company not paying an amount demanded under a Wind-up Notice.
To start a court liquidation process, a creditor will serve a Statutory Demand on the company to pay a debt pursuant to section 459E of the Corporations Act. Failure to pay the money demanded in a Statutory Demand means there is an “assumption at law” that the company is insolvent. An application can then be made to the Court to have the company wound up. At that time, an Insolvency Practitioner, who is an Official Liquidator, is appointed as Liquidator of the company. Immediately upon the appointment of the liquidator the powers of the directors cease and the liquidator takes control of the company.
In most cases, when this form of liquidation takes place, the company has stopped trading. Therefore the liquidator’s role is primarily to investigate the affairs of the company and recover or realise its assets and to distribute the funds to creditors in accordance with the provisions of the Corporations Act.
If you are a creditor of a company and want to start down this path you are best off seeking the assistance of a lawyer to draw up the Statutory Demand to be sure it will be enforceable in Court. They will also handle the application to Court to follow through with the demand once it expires. This application requires the lawyer to supply a Consent to Act from an Official Liquidator. Dissolve has a registered Official Liquidator and can supply a Consent to Act to your lawyer on request. If you need a Consent to Act please contact us .
In circumstances where you urgently need to protect the assets of a company, a Provisional Liquidator can be appointed by the court. At the time of making the application for a Provisional Liquidator, an application to appoint an Official Liquidator can also be made.. In making an application to the Court, evidence must be put forward as to the financial state of the company and the reasons for the need to remove the directors from their positions. The stated reason may include
- a shareholders dispute relating to the management of the company; or
- evidence that the directors are not acting in the interests of the company.
If you need further advice on this subject please contact us.
If you would like to learn more about Liquidation, please access our full Liquidation guide created by Dissolve’s specialists explaining this in detail.