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In light of the Covid-19 pandemic, and the federal and state governments response to shut down commerce considered non-essential, unavoidable instances of companies becoming insolvent are set to rise.
This article is written to assist you in understanding your rights and responsibilities when facing company liquidation.
What is liquidation?
Liquidation is a formal process of insolvency, in which the life cycle of a company is brought to an end. Practically, the process results in liquidators being appointed to control the company and its assets. The liquidators may decide to sell company assets and use the proceeds to repay debts to creditors.
This process may be entered into voluntarily or involuntarily by way of court order. These respective types of liquidation are both informally known as the process of ‘winding-up’ a company.
What are my options?
Whilst not common, in some cases, it may be possible for the liquidator, a creditor or a member of the company to apply to a relevant Court for an order to set aside a liquidation. Such an order would cause control of the company to be reverted back to the directors.
To make such an order, the Court must be satisfied that the conditions that caused the company to be liquidated no longer exist. In instances where companies enter liquidation due to insolvency, the company must demonstrate that they are no longer insolvent, ordinarily by paying out all creditors and the costs of the liquidator.
Further, the Court will only make such orders if they are satisfied that the company will remain solvent and the directors are the appropriate parties to whom the company’s affairs may be entrusted.
Applications to terminate a liquidation, whether it be by court order or voluntarily, are made under the discretion of the relevant court hearing the application. In determining this, the court may give regard to the following factors:
1. The position of current and future creditors;
2. The interests of the liquidator, primarily being financial interests (i.e. their fees);
3. Any shareholder interests;
4. The public’s interest (including any commercial misconduct engaged in by the directors); and
5. Any other issues relevant to the situation’s context.
It is important to note that the court is unlikely to take into consideration any factor that could have been and was not put before the court in the initial defence of a winding up application.
If you are facing liquidation, please contact MC Lawyers and Advisers for a free consultation to discuss how we can assist you in securing the best possible outcome in your circumstances.