Member Article

How Creditors Voluntary Liquidation Works & Effect on the Business

When a creditor has reached a point where they no longer have enough capital to operate, or they reach the point of bankruptcy, they have the option to voluntarily liquidate their assets and put and dissolve the company. This decision must be made by the company directors in accordance with the rules set forth, in writing, for the management of the company.

In order to liquidate the company, the directors must utilize a licensed insolvency practitioner. This process is not the same as compulsory liquidation, which is a forced action that has been ruled on in court.

These steps must be followed by the directors in order to legally liquidate the company.

Directors Contract with an Insolvency Practitioner

The first thing the directors must do is contact an insolvency practitioner. Typically, this person will be the primary representative for the company at the creditor’s meeting. This person will go over the various options the company has, but if the intent of the directors is to dissolve the company, this is the action that will most likely be taken.

Other Options for Solving Problems are considered

There are many options that may be considered before the company is liquidated. A company that is not aware of their options may feel like there is no other way. However, the practitioner can shed light on options that the directors were not aware that they had, such as a payment plan that is composed in a formal agreement and signed upon by the directors and their creditors.

Some companies qualify for a pre-packaged administration, which focuses on the company selling a portion of its assets, allowing them to pay back some of their creditors.

The Company Suffers Liquidation of Assets

In a radical situation, the company will need to resolve any debts to their creditors. This may involve the company selling all, or almost all of its assets. The CPA Balmain will take the money, settle any debts to creditors, and return the remaining money to the directors. The directors will then handle any claims from employees, pensions, and termination packages that were promised to them upon hire.

The Direct Effect to the Company and Its Directors

After the Accounting Services Sydney is complete, the company will no longer exist. But what happens to the directors? This depends on the information found by the liquidator during his investigation into the practices of the directors. If it is found that one or all of the directors failed to perform in the best interest of the company, they may be taken to court and be found guilty of wrongful trading. In this case, the directors could cause personal damages to their own assets when they are held personally liable for the company’s debts.

This was posted in Bdaily's Members' News section by Thomas Dawson .