Shareholders - Liquidation

What is a liquidation or winding up? 

What is the liquidator’s role?

How does liquidation affect me?

What information will I receive in a liquidation?

Information sheets

 

What is a liquidation or winding up?

Liquidation is the orderly winding up of a company’s affairs. It involves realising the company’s assets, cessation or sale of its operations, distributing the proceeds of realisation among its creditors and distributing any surplus among its shareholders.

The two types of liquidation for an insolvent company are:

  • court, and
  • creditors' voluntary.

A creditors voluntary liquidation is a liquidation initiated by the company. A court liquidation starts as a result of a court order, made after an application to the court, usually by a creditor of the company.  

What is the liquidator’s role?

The liquidator’s role is to:

  • collect, protect and realise the company’s assets
  • investigate and report to creditors about the company’s affairs, including any unfair preferences which may be recoverable, any uncommercial transactions which may be set aside, and any possible claims against the company’s officers
  • enquire into the failure of the company and possible offences by people involved in the company and report to ASIC
  • after payment of the costs of the liquidation, and subject to the rights of any secured creditor, distribute the proceeds of realisation - first to priority creditors, including employees, and then to unsecured creditors, and
  • apply for deregistration of the company on completion of the liquidation.

Except for lodging documents and reports required under the Corporations Act, a liquidator is not required to do any work unless there are enough assets to pay their costs. 

How does liquidation affect me?

The liquidator’s primary duty is to all of the company’s creditors. The shareholders rank behind the creditors and are unlikely to receive any dividend in an insolvent liquidation unless they also have a claim as a creditor.

In a court liquidation, the liquidator is not required to report to the shareholders on the progress or outcome of the liquidation.

The liquidator is not required to hold a meeting of shareholders during a creditors’ voluntary liquidation. A joint meeting of the creditors and shareholders must be held at the conclusion of the winding up.

Shareholders in both types of insolvent liquidation can request that the liquidator call separate meetings of shareholders and creditors to decide whether a committee of inspection should be appointed and, if so, who will represent the shareholders and creditors on the committee. However, the shareholder(s) making the request must pay the costs of calling and holding these meetings.

A committee of inspection assists the liquidator, approves their fees and, in limited circumstances, approves the use of some of their powers.

A transfer of shares in a company or alteration of status of shareholders during a liquidation will not be effective unless the liquidator gives their written consent or the court permits.

The liquidator can call on the holders of any unpaid or partly paid shares in the company to pay the amount outstanding on those shares.

If a liquidator makes a written declaration that they have reasonable grounds to believe there is no likelihood that shareholders will receive any further distribution in the winding up, shareholders can realise a capital loss. To realise a loss, the shares in the company must have been purchased on or after 20 September 1985.

If no such declaration is made by the liquidator, the deregistration of a company at the end of the liquidation also enables realisation of any capital loss.

You may wish to seek tax advice about your ability to realise a capital loss if you hold shares in a company which has been placed in liquidation.  

What information will I receive in a liquidation?

A liquidator must lodge with ASIC minutes of all meetings of members and creditors, committee of inspection meetings, and detailed lists of receipts and payments every six months. A copy of these can be obtained from any ASIC Business Centre, on payment of the relevant fee. The liquidator must also make them available at their office for inspection by shareholders and creditors.

In a court liquidation, the liquidator is not required to report to the shareholders on the progress or outcome of the liquidation.

The liquidator is not required to hold a meeting of shareholders during a creditors’ voluntary liquidation. A joint meeting of the creditors and shareholders must be held at the conclusion of the winding up.

Listed and very large companies usually have financial reporting obligations under the Corporations Act. ASIC has given relief so that such companies don’t need to comply with these obligations if they are in liquidation. Also, public companies in insolvent liquidation don’t need to hold annual general meetings (this does not apply to a section 509 meeting). 

Information sheets

Return to Shareholders

Last updated: 23/03/2016 03:13