Liquidation is the process of winding up or closing down a company.

A common reason why a company may go into liquidation is because it becomes insolvent. Our insolvency lawyers will be able to tell you that the technical definition of insolvency is a company that is unable to pay its debts as and when they fall due.

The Liquidation Process

The general process of liquidation includes:

  • realising (or selling) the company’s assets;
  • stopping the operation of the business (sometimes the business itself can be sold);
  • distributing the proceeds from the sales among creditors; and
  • paying shareholders the remaining surplus.

Role of the Liquidator

In order for this process to occur, a liquidator is appointed and it is their job to do the above. Note that a liquidator does not need to take on a job unless there are sufficient assets in the company to pay for the liquidator’s work.

The liquidator is also responsible for investigating the company’s affairs. This may include trying to find whether there has been any breach of director’s duties such as good faith or acting for a proper purpose, or trying to set aside any commercial contracts which would be considered unfair.

As part of the liquidation process, a liquidator will often call a creditor’s meeting. At these meetings the liquidator will generally provide all of the creditors with information on the progress of the liquidation, or it may seek approval for a particular act. It may also seek additional information from the creditors about the company affairs and at this stage, an insolvency lawyer may be appointed to look at the legal side of these affairs. If you think that a company that owes you money may have engaged in such action, feel free to contact us and our insolvency lawyers will be able to provide you with advice. You are not limited, however, to raising your concerns at the meeting. You will be able to do so at any time in writing to the liquidator.

Paying Debts

Once all the formal proofs of debts have been received and the assets realised, creditors will be paid out by the liquidator. The general order of preference in which this occurs is as follows:

  • costs and expenses incurred as a result of the liquidation, including the liquidator’s fees;
  • any outstanding employee wages and superannuation;
  • any outstanding employee benefits (i.e. annual leave, sick leave, long service leave and retrenchment pay); and
  • finally unsecured creditors.

Prior to the final payout, if you’re a secured creditor, your debt would have already been “paid back” to you by the liquidator, in effect “giving” you the asset upon which your debt was secured.


Once all the payments have been made, you will not be able to claim any debts, so ensure that you have properly submitted your proof of debt and have it admitted. Feel free to contact LegalVision on 1300 544 755 and one of our insolvency lawyers will be able to help you submit your proof of debt.

Lachlan McKnight
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