The corporate world is subjected to multiple challenges and uncertainties. There are times when companies are on the verge of being shut down. A company might be facing financial difficulties that pose a question of its viability. This is the time when a director might consider liquidating the company.
What is the liquidation of a company?
Liquidation is the process by which a company’s assets are sold off to settle debts and operations of the company are brought to an end. This is done when a company is no longer in a position to function further. All assets of the company are sold off to get cash and repay the creditors and owners. The process of bringing your company to a close is disheartening and under such situations, it is very much possible for founders to take wrong steps that might result in further trouble. Hence it is important to confer the entire process and get liquidation advice from experts.
What is the process of liquidation?
When you decide to close the curtain on a venture you need to know all the steps involved.
- The first thing is to make a decision and come to the resolution of liquidating the company.
- Next, you need a Liquidator who will give you liquidation and advise and conduct the process on your behalf.
- The liquidator publishes insolvency and company deregistration notices on the ASIC website and this notice is then forwarded to all the creditors of the company to aware them of their rights.
- Once the creditors approve the course of action, the process of selling assets is initiated, and the claims are received from creditors.
- These funds are then divided among the creditors.
- Once all dues are paid, the ASIC is notified and they deregister the company.
Types of liquidation
- Voluntary liquidation:
It is not mandatory that a company is closing due to its financial strains, at times directors voluntarily decide to end business operations to either start a new venture, retire, or for many other reasons. This is known as voluntary liquidation.
- Creditors’ voluntary liquidation:
At times directors do not wish to liquidate their company but they have to as they are either not able to pay off loans or lack funds to run the company. In such cases, the board concludes to liquidate the company.
- Compulsory liquidation:
Involuntary liquidation also known as compulsory liquidation is a court-ordered process that occurs when a company is unable to pay its debt and the creditors take legal action to force the company into liquidation.
What happens if a company can’t pay a tax bill?
A common question that comes to mind is, “What happens if I can’t pay my tax bills?”. There is a solution for this as well, in such a situation, it is advised to go for creditors’ voluntary liquidation. In such cases, you need a licensed insolvency practitioner who communicates the issue with income tax authorities and ensures the maximum possible payment of taxes. Otherwise, you could get into legal trouble for not paying taxes.
What happens to the staff?
During liquidation, the company’s operation ceases resulting in the termination of the staff. Employees may be made redundant, and their contacts are typically closed. In such cases, employees are entitled to receive any outstanding wages, accrued holiday pay, and other contractual entitlements as per their employment contract and local labor laws. Employees should consult legal advisors to confer their rights and entitkents in such situation.