What is company liquidation?
Company liquidation is the formal process for winding up a registered company, ie companies registered with the Australian Securities and Investment Commission (ASIC), and it can only be done through ASIC. The aim of liquidation is to have an independent, qualified external administrator take control of the company, finalise its financial affairs, and sell off its assets. The liquidator – who must be a registered liquidator with ASIC – will dismantle the company’s structure and wind up its affairs for the benefit of creditors. One of the liquidator’s key tasks is to ensure the company ceases trading permanently as cost effectively as possible.
Businesses operating under other types of structures, such as sole traders or partnerships, cannot utilise the liquidation process. It’s a distinctly different process from bankruptcy, which applies to individuals and not companies.
Of note, while liquidation is often associated with insolvency, companies that enter liquidation aren’t always in financial strife or insolvent – it might be that the business owners simply wish to close their business or take advantage of tax free distributions of pre CGT assets by a Liquidator.
Liquidation is usually the final option, or an option of last resort, because it almost always leads to the company’s permanent closure. Unlike other insolvency processes like receivership or voluntary administration, liquidation does not allow for the possibility of a company turnaround.