Liquidations can be either voluntary or involuntary but in both cases the assets of a business are liquidated and converted into cash. A company that is liquidated means it can no longer trade as all its stock, equipment, property and other non-cash assets are sold.
A Voluntary Liquidation is instigated by the company’s director(s) and shareholder(s). There are two types, dependant on whether the business is insolvent or solvent.
Creditors Voluntary Liquidation (CVL)
A CVL applies when a company is insolvent – that is, it does not have enough assets to meet its liabilities. In this case, the director(s) and shareholder(s) may appoint a liquidator to deal with the creditors’ claims. The Liquidator sells the company’s assets to pay the creditors.
Members Voluntary Liquidation (MVL)
A MVL applies if a company is solvent – or has sufficient assets to meet its liabilities. A MVL generally occurs when the director(s) and shareholder(s) decide that the company is no longer required and the assets should be converted into cash and distributed to the shareholder(s).
Involuntary Liquidations commence with a Winding Up Order from either the Federal Court or Supreme Court of Western Australia and can be applied for by:
- A creditor
- A shareholder
- A director
There are two types of Involuntary Liquidations: Official (or Court) Liquidations (OL) and Provisional Liquidations (PL).
Official (or Court) Liquidation
An OL is usually instigated by a creditor. In Western Australia, the majority of OLs result from the Australian Taxation Office taking action to recover outstanding taxes.
A PL is an unusual and infrequent appointment that generally involves a dispute between director(s) or shareholder(s). An Order for a PL usually results when an application is made to the Court on the basis that the company’s assets are at risk.
The Order is generally obtained within one day of filing the application and a Provisional Liquidator is then appointed to safeguard the assets.