Understanding the Different Options for Liquidating Your Company
At some point, a business may reach the end of its life cycle, and it may no longer be a viable option to keep it running. The reasons for this could be due to financial reasons or the lack of growth potential, among many other factors. When this happens, business owners consider liquidation as a viable option, which involves selling off the company's assets and distributing the proceeds to creditors and stakeholders. However, there are different options, so it's worth knowing what they are to make an informed decision.
Voluntary Administration
One of the first options is voluntary administration. This is where a business owner can appoint an external administrator to manage their affairs and put the company into voluntary administration. The administrator is responsible for managing the business, evaluating its financial position, and exploring options for the creditor's best interests. This can include selling the company or allowing the creditors to vote on either accepting a proposal to accept a new plan or liquidating the company.
Creditors' Voluntary Liquidation
A creditors' voluntary liquidation (CVL) is another liquidation option for companies in Australia. Unlike voluntary administration, this option lets the company liquidate all available assets to repay creditors in the order of priority as laid down by legislation. The shareholders decide to wind up the company voluntarily or from the administrator's recommendation. The appointed liquidator distributes the company's proceeds among the creditors as per priority.
Court Liquidation
This is where a court orders the company to be liquidated by appointing a liquidator. This is usually done after the creditor has taken legal action against a company to force them to liquidate. The court appoints a liquidator, and they take charge of selling the company's assets, repaying creditors, and winding up the company's operations.
Receivership
Receivership is where a financier or a secured creditor appoints a receiver. This happens when the company defaults on a contract or loan terms. Receivership is different from voluntary administration and involves the receiver selling the company's assets to repay the outstanding debts to the secured creditor. The receiver acts in the secured creditor's interest and tries to get them as much money as possible.
Members Voluntary Liquidation
Members' voluntary liquidation occurs when shareholders vote to wind up the company voluntarily when it is solvent. The appointed liquidator sells the company's assets to pay off all prior creditors, including the shareholders. Any profits made are then paid out to the shareholders as per their shareholding.
What to Do Next
Realising that your business is no longer a viable option can be challenging for any business owner. However, understanding the options available for liquidating a company can help you make an informed decision that will benefit you, your creditors, and your stakeholders. It is worth noting that each option has different implications for the debtor and creditors, so you should consult an expert accountant before going any further.
Contact a company like Menzies Advisory to learn more.