Winding up Companies and the Role of the Liquidator
Is it worth killing the cow to get the milk? If you are the creditor of a company this is the question that you will eventually face when the company won’t (or feels that it can’t) pay those amounts that are owing.
The answer to this question lies, in part, in the powers of the Liquidator, and what they can do once appointed, as it is the Liquidator who will be tasked with recovering the outstanding money.
A company is considered a legal person. A key benefit of incorporating and conducting business through a company is that the liability of the company is limited to its assets (there are exceptions such as personal guarantees or insolvent trading). There is no recourse against shareholders or officers of the company.
Therefore, where the situation arises that the liabilities or debts of the company exceed these assets one possible outcome is that a creditor of the company may place the company into liquidation and appoint a liquidator.
What is liquidation?
The purpose of liquidation is to wind up the affairs of the company with a view to ultimately ending the legal existence of the company. To accomplish this there will be an investigation into the financial circumstances of the company.
Resulting from this investigation a list of creditors and assets of the company will be identified, unusual transactions may be flagged for further investigation or action and a dividend may be issued to creditors before the company is ultimately deregistered and ceases to exist.
These tasks are performed by an independent person (or persons) called a Liquidator.
Role of the Liquidator
As noted above, the first and foremost duty of a liquidator upon appointment is to commence an investigation into the affairs of the company. To assist in this role liquidators are granted extensive responsibilities over the affairs of the company including the transfer of the powers of management from the directors to the liquidator.
The Liquidator may then investigate transactions entered into by the company. While there are a number of different rules, where the company has made payments recently the liquidator may be able to call for these funds to be repaid to the company.
Ultimately, the liquidator will attempt to gather in all amounts owing to the company, sell off the valuable assets of the company and collect a pool of funds to pay out to the various creditors of the company.
If you are dealing with a company that is refusing to make payment, and are unsure about how or if you should place that company into liquidation, we can provide expert advice on the best course to pursue. Contact Craig Mason at Craig@smslaw.com.au or call us on 5428 1111 or 07 3667 8966.
By Craig Mason