How the Compulsory and Voluntary Company Liquidation Process Works?

Liquidation means dissolving a company. The assets of the company get sold off, and the cash is used to pay its creditors. A company with strong financial health will not liquidate, but there are situations when companies opt to liquidate.

When a company decides to go into a liquidation process, several questions linger related to why it has to do this. Company liquidation is a traumatic experience, but firms across Australia can take help from licensed, ASIC regulated and qualified professionals from The Insolvency Experts. They are liquidation specialists and are in the field from 2006. Call them 24/7 for free expert advice!

Companies choose to go into liquidation, either voluntarily or compulsorily. The latter liquidation process is a little complex than the former because it is the creditor who files a petition in the court for liquidating the specific company to pay their accumulated debts.

Voluntary liquidation

Voluntary liquidation is usually a comfortable way because the entire process is well-planned, and it implements under the company directors themselves. The company assets get sold up and closing, on the whole, is more satisfying because all involved parties [directors and shareholders] are mutually on the same page without any dictating orders from the court.

If the company is solvent voluntary liquidation can be MVL or Members Voluntary Liquidation. If a company is insolvent voluntary liquidation can be CVL or Creditors Voluntary Liquidation. MVL is chosen to bring an orderly business termination. Shareholders start it because they feel that the directors are not prioritizing business interest. The company’s products or services are losing their market share or other such reasons. CVL is chosen to avoid compulsory liquidation.

When the insolvent company’s demise appears to be looming, voluntary liquidation is chosen. The process is more advantageous rather than waiting for the creditors to pressurize the company to go into liquidation as there are not enough assets to reimburse the due debts. Thus, the creditor’s risk also gets reduced. Directors involved get a clean break and loose ends get tied up!

Compulsory liquidation

Creditors initiate a compulsory liquidation process and if they don’t get a response to their statutory orders, the court case is filed for company closure. A creditor that starts the process bears court cost burden but is the first beneficiary after the process gets completed.

A court petition for liquidation does not involve any cutting-edge techniques to clear the debts. The petitioner has to show that other possible options to get paid have been drained and the only way is to close the company.

Usually, the reasons include taxes not paid, assets value exceeds the liabilities, or the company is unable to pay off their debts. The company review and liquidation process are legally placed under an official receiver and liquidator. Both commence the valuing and selling process of the company’s assets.

Provisional liquidation is also a kind that looks to preserve the assets of the company that can be at potential risk. A liquidator is employed to preserve the company’s financial status, while the court considers the liquidation petition.

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