The main objective of the liquidator is to take control of the firm so that all of its affairs can be closed systematically and benefit all creditors. To perform the process correctly, you need to get a thorough understanding of this process.
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In this article, we will learn the correct way to implement liquidation in a business.
Types of company liquidation
Liquidation in the company happens in various ways. The commonest one is a creditors’ voluntary liquidation. It starts in one of the below-mentioned ways:
- Court liquidation, and
- Creditors’ voluntary liquidation
Creditors opt for liquidation post voluntary management or an end of the deed of the company’s arrangement to liquidate the firm and hire a liquidator. In court, a liquidator is appointed to close a company, after an application is issued by a creditor.
After a firm goes into insolvency, unsecured creditors can’t start or continue any legal action against the firm unless the court allows it.
What are the duties of a liquidator?
- When a firm gets liquidated, the liquidator has a big role to play for the creditors of the company. It gathers, safeguards, as well as realizes the assets of the firm.
- Evaluate and report to credit lending firms about the different affairs of the company that includes unfair preferences that are recoverable, any unimportant uncommercial transactions, and claims against the officers of the company.
- Investigate the possible failures of the firm and possible felonies by employees of the firm and report about it to ASIC.
- Distribute the profits of realization (after making full payment of liquidation cost) to priority creditors, such as employees, followed by unsecured creditors.
- Apply to deregister the firm on the conclusion of the liquidation.
- A liquidator also works to recover money for creditors
A liquidator can also arrange a creditors’ meeting. This is done mainly to notify creditors about the development of the liquidation process. These professionals figure out their wishes on a specific matter and obtain the consent of the fees of liquidator.
A creditors’ meeting allows to ask questions related to the liquidation process and to notify the liquidator about the company’s affairs.
Payment of dividends
Whatever funds are left after paying the liquidation cost and paying to priority creditors, like employees, the liquidator will need to pay to unsecured creditors in the form of a dividend. The order in which these funds are distributed is as follows:
- Expenses, and costs of the liquidation that includes liquidators’ fees
- Outstanding wages and superannuation of employee
- Outstanding employee’s leave of absence that includes yearly leave, long service leave, and sick leave
- Unsecured creditors, and
- Employee retrenchment pay
The article has equipped you with all the information related to the roles that a liquidator performs for an insolvent company. Liquidations end when the liquidator realizes as well as distributes the available property of the company and send a report to ASIC. Hiring a liquidator is essential to ensure the smooth operation of the liquidation process.