Court Liquidations

A court liquidation usually occurs as the result of a creditor taking action to recover their unpaid debt by making an application to court to wind up the company.

In order to obtain a court order to wind up a company, a creditor must have a valid debt and be able to demonstrate to the court that the company in question is insolvent. If the court is satisfied the company is insolvent and should be wound up, it will make a winding up order placing the company into liquidation and will appoint a registered liquidator (usually a liquidator nominated by the creditor).

Once appointed, the liquidator undertakes all the usual duties required of a liquidator including taking control of and selling the company’s business or its assets, collecting outstanding debts or otherwise taking actions necessary to recover funds to repay the company’s creditors. 

The liquidator will notify all known creditors and other stakeholders of the liquidation and will deal with all matters required to wind down the company’s business.

The liquidator will also investigate the company’s affairs and report to ASIC. Any other avenues of recovery that may be identified including insolvent trading claims against directors, possible preferential payments or other potential uncommercial transactions or loans, may be pursued by the liquidator in order to generate funds for creditors.

Any funds recovered by a liquidator in a court liquidation are distributed according to priorities set out in the Corporations Act 2001 with the legal costs of the petitioning creditor paid first, with the liquidator’s fees and costs plus amounts owed to secured creditors and priority creditors (ie: for unpaid employee entitlements or superannuation) then paid before any repayment to unsecured creditors.

The potential outcomes of a court liquidation depend on what side of the liquidation you sit:

The costs of a court liquidation are dependent on what side of the liquidation you sit. 

The creditor seeking to wind up the company pays the legal costs of the process. While those costs are paid first if any funds are recovered in the liquidation, it is not unusual that no funds are recovered in a court winding up with the result that those costs - and the creditor’s debt - remain unpaid. Therefore, creditors really need to consider how much they are likely to gain before opting for what can prove to be a risky investment.

For directors, there are no upfront costs in a court liquidation as the winding up action is undertaken by creditors. 

The best way to protect your company from a court liquidation is to avoid the situation entirely!

If your company is experiencing financial difficulties, now is the time to act. 

At the first signs of financial stress, it is always best to seek advice from an experienced insolvency practitioner who can advise regarding the available options to help you maintain control of your company and deal with its debt and financial struggles.

If your company is facing the risk of a court liquidation or if a creditor has already commenced the process to wind up your company, the sooner you speak to an insolvency expert, the more options may be available to you to help your company survive. 

APL Insolvency has over 20+ years of experience in dealing with court liquidations and other forms of corporate insolvency.

If you are interested in learning more about the options that might be available to save your company, contact APL Insolvency today to arrange a free, no-obligation options assessment consultation.