Company Liquidation
Closing Your Business
Professionally and Legally
✔ A resolution to financial distress.
✔ Free 24/7 consultation.
✔ Voluntary and court-ordered liquidation.
✔ Director protection and personal liability advice.
✔ Working seamlessly with Liquidators.
Business Liquidation … When It’s Time To Let Go
When you’ve given everything to build, maintain, and run your company … it can be devastating to let it go. Whether you’re closing due to insolvency, creditor pressure, accepting that your operation just isn’t working, or simply deciding to move on or retire … shutting your business doors for the final time is never easy.
But even a difficult conclusion can be handled with dignity, protection, and legal confidence.
At Ash Walker Lawyers, we know that every company liquidation brings serious decisions, procedural confusion, and concerns about the future. Our expert team provides understanding, guidance, and positive action to help you navigate the process … ensuring your business affairs are brought to a positive and hopeful end.
What Is Company Liquidation?
If a business regrettably gets to the point when it cannot pay its debts … and all other options such as administration, refinancing, and restructuring are exhausted … it may have no choice except to shut down.
Liquidation is the formal process of closing a company. A Liquidator takes control of the enterprise, sells its assets, and allocates the funds to creditors (and shareholders if there are remaining funds).
And, in Australia, liquidation is a rising trend. In the nine months from the 1st of July 2023 to the 31st March 2024, liquidations rose by a massive 218.8 percent, compared to the previous year.
Although admittedly, liquidation can sometimes be a strategic decision for a perfectly solvent company that’s no longer required … most often it happens to businesses in financial distress. It brings closure, stops debts increasing further, and releases directors from mounting pressure.
The Three Main Types of Liquidation
Broadly speaking, there are three key forms of liquidation. While the outcome is generally the same … assets are sold to pay off creditors and shareholders … the reasons behind the liquidations and their originating processes are dramatically different:
Creditors’ Voluntary Liquidation (CVL)
This is the most common type of liquidation, and the main focus of this page.
Despite its name … which seems to indicate that it’s instigated by the creditors themselves … it happens when the directors decide that their company is insolvent, and subsequently appoint a Liquidator to handle its closure. It’s a powerfully proactive and respectable way for the directors to hand over control.
It gives company officers protection from personal liability for insolvent trading, delivers an opportunity for trade creditors to be paid, and can help address outstanding tax debts with the ATO.
Members’ Voluntary Liquidation (MVL)
Sometimes solvent businesses, i.e. those not in debt, are simply no longer needed. Perhaps the company was a vehicle for a project that’s now finished, the directors are retiring, or the returns provided by the operation were disappointing. So, it needs to be closed.
The directors must make a Declaration of Solvency, which states they’ve thoroughly looked into the business’s affairs, and are confident it can fully pay all of its debts in no more than one year. A Liquidator is then appointed, who distributes any surplus funds to the shareholders.
Court-Ordered Liquidation (Compulsory Liquidation)
This most typically happens when a creditor has issued a Statutory Demand to the company, and it has failed to pay the debt, negotiate a settlement, or have the Stat Demand set aside.
If the court can be satisfied that the company is insolvent, it can issue a winding-up order and appoint a Liquidator to close the business. If your business is facing a Statutory Demand, talk to Ash Walker immediately … as you only have 21 days to address the matter.
Thinking About Closing Your Company?
When You Should Think About Creditors’ Voluntary Liquidation
You take a step back, you look at your business, and know things really aren’t going to get any better. Every decision you make seems to be huge, and the financial pressures never end.
A Creditors’ Voluntary Liquidation (CVL) could be the outlet you need.
But often, directors wait way too long. Early action can give you more control, reduce risk, and bring a welcome respite. Ash Walker Lawyers will look at your situation, advise you on the best course of action, and deliver legal clarity combined with compassion and understanding.
The Signs Your Business May Need Liquidation Can Include:
❌ You’ve already exhausted refinancing, restructuring, and administration options.
❌ You’re always unable to pay your bills, tax, or salaries promptly.
❌ Creditors are threatening legal action or issuing Statutory Demands.
❌ The ATO is sending demand letters or taking you to court.
❌ You’re using personal money to keep the business going.
Liquidation … A Strategic and Powerful Choice for Directors
Facing the possibility of insolvency and liquidation is perhaps one of the toughest business situations you as a director can face. But, what may at first seem like the ultimate defeat, liquidation can be an incredibly strategic decision, providing both a powerful resolution and welcome relief.
With Ash Walker Lawyers giving you a professionally managed and legally structured liquidation, we can help:
- Safeguard directors from trading while insolvent – a properly timed liquidation could prevent allegations of insolvent trading, which could lead to serious claims against you.
- Mitigate DPN risks – prompt action could mean you reduce the risk of personal liability for tax debts that could come from a Director Penalty Notice (DPN) from the ATO.
- Stop debt accumulating – by bringing the company’s affairs to an end, it will not gain any more liabilities that could make the situation worse.
- Ends pressure from creditors – when the Liquidator takes over, all creditor correspondence with you ceases, with the Liquidator being the sole point of contact.
- Relief from day-to-day stresses – as company matters are in the Liquidator’s hands, you get an escape from the overwhelming worry and stress of trying to save a struggling business.
- Close with dignity – a CVL could be a structured, professional, and dignified way to close your business, much more appealing than a chaotic collapse or enforced creditor action.
The Voluntary Liquidation Process
As, hopefully, you’re unlikely to have been through a liquidation before, the prospect of the whole situation may seem confusing and imposing. Ash Walker Lawyers helps you navigate each step, providing assurance and assistance when you need it.
When the Directors decide that liquidation is necessary, and a Liquidator is appointed, the process typically follows this route:
- The Directors’ role ceases – with the Liquidator assuming control, the directors must step back.
- Information request – the Liquidator asks the directors to fill in a questionnaire and to promptly deliver their books and records.
- Liquidator investigation – checking the company’s financial transactions and dealings to ensure they were legal, and there was no insolvent trading.
- Realising assets – the Liquidator gathers the company’s cash, equipment, and property and sells them.
- Creates a creditors’ report – the Liquidator explains the final financial position of the company to the creditors.
- Liquidator addresses debts – if funds are available, they are addressed in order of priority as determined by Australian law.
- Company finalisation – the Liquidator prepares the Final Report for Creditors and asks that the company be deregistered and removed from the ASIC register.
Let Us Lead You Through Liquidation
The Tax Consequences of Winding Up a Company
While winding up your company will eventually mean it ceases to exist, that doesn’t necessarily mean that all its tax obligations disappear too. The type of tax debt, and the format of liquidation that’s followed can affect these ATO liabilities.
Taking legal advice from Ash Walker is crucial. Working with both you and your accountant, we can advise on the typical legal tax outcome specific to your position, and advise on the best way forward.
How Liquidation Affects Tax
Existing ATO Debt
In liquidation, the ATO is classed as an unsecured creditor and not a priority. This priority status was removed in 1993 as a result of the Harmer Report … meaning they have no more right to a liquidated company’s realised money than suppliers.
Tax Liabilities Paid by the Liquidator
If funds permit, the Liquidator must address outstanding BAS, GST, and PAYG lodgements and payments. Furthermore, they need to complete a final company tax return, covering the period from the start of the financial year to the date of deregistration.
Capital Gains Tax (CGT)
While a CGT event could occur in insolvency situations, it’s unlikely. Most typically, capital gains tax becomes important in MVLs … where there could be surplus assets that are distributed to shareholders. If treated as capital distributions, they could trigger CGT.
Income Tax
If the Liquidator has enough funds to make payments to shareholders, some of this could be classed as dividends for tax, especially when retained profits are being used.
Director’s Tax Liability
For you, as the director, this is the most important tax consequence. Although the company’s tax liabilities are theoretically ended with the closure, personal liability for the tax debt can remain. In certain circumstances, the ATO can come after you for PAYG, Superannuation Guarantee Charge, and Goods and Services Tax (GST).
Issuing of a Director Penalty Notice (DPN)
Personal liability for company tax is enforced through a DPN. A timely and well-planned Voluntary Liquidation can often prevent a DPN from making you personally responsible. But if a lockdown DPN has already been issued due to non-lodgment, you’re already liable.
How Ash Walker Lawyers Helps in Company Liquidations
While the process of Voluntary Liquidation must be initiated by you and the other directors, it’s definitely not a DIY process. With numerous legal complexities, duties, and hidden pitfalls that could create personal risk … you need expert help.
Ash Walker Lawyers gives you the experienced legal expertise you need. With understanding and reassurance, we can assist with:
- Advising on the ideal path – perhaps liquidation isn’t the best option. We can explore other avenues such as a Small Business Restructure (SBR), Voluntary Administration, or refinancing.
- Meeting your obligations – advising you on your responsibilities as a director before, during, and after liquidation to avoid potential claims.
- Defending your interests – providing guidance and working through matters such as DPNs and personal guarantees.
- Working with the Liquidator – acting on your behalf, we communicate with them and ensure your rights are protected.
- Helping in creditor negotiations – speaking to creditors to minimise disputes and address claims.
- Reducing the risk of insolvent trading claims – safeguarding personal liability dangers arising from allegations of wrongful conduct.
Liquidation … the End of the Company, a New Beginning for You
Looking at the emotionally-challenging possibility of insolvency is one of the most difficult circumstances a director can face … but you don’t have to do it alone.
With Ash Walker Lawyers, you have an understanding ally by your side. Through our diligence, expertise, and reassurance, we can make what first seemed like a reluctant defeat into a powerfully strategic step forwards.
With Ash Walker Lawyers, You Gain the Advantages Of:
Dignified Resolution
Bringing you an orderly and legally safe way to close your business, to ensure a clear end to financial distress.
FREE 24-Hour Hotline
Liquidation concerns can trouble you at any time, receive help when you need it most.
Fast Response
Giving you rapid and clear assistance when time is short.
Compassionate and Reassuring Help
Understanding what you’re going through.
Expert Legal Guidance
A team experienced with businesses in financial distress, advising you on your duties, options, and best outcomes.
Structured Process
Guiding you at every step, so you know exactly what to expect next during liquidation.
Friendly, Jargon-Free Advice
Clear liquidation and financial distress advice in language you understand.
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Transforming Chaos Into Clarity
Providing reassurance to stressful liquidation situations.
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Considering Company Liquidation?
Business Liquidation FAQs
What Does Liquidation Mean for Staff?
Usually, Company Liquidation ends your staff’s employment. If funds remain after addressing the Liquidator’s fees, your employees are then paid their outstanding entitlements before other unsecured creditors.
If this isn’t possible, the Fair Entitlements Guarantee can typically help with:
- Up to 13 weeks in unpaid pages.
- Unpaid annual leave.
- Up to five weeks in lieu of notice payment.
- Redundancy pay.
What Is the Order of Payment in Liquidation?
In Australia, who gets paid first in liquidations is outlined by section 556 of the Corporations Act 2001. In brief, it follows this order:
- The costs of liquidation.
- Secured creditors.
- Priority unsecured creditors.
- Unsecured creditors.
- Shareholders.
How Long Does the Liquidation Process Take?
Generally speaking, liquidations for simple companies without any legal complications can take around 12 weeks to finish. For more complex businesses, it could take up to 18 months.
Can You Set Up Another Company After Liquidation?
Maybe! Despite being a director of a liquidated company, you may still be able to start up a new business.
That said, the Australian Securities and Investments Commission (ASIC) always continues to watch liquidated company directors, monitoring what happens. For example, if you have a repeating history of your companies going under in a reasonably short time frame, they could disqualify you from acting as a director.