Tuesday, 16 June 2015

What happens when a company experiences financial trouble?

When a company gets into financial hardship, it is likely to go into one of four financial states listed below. These are:
  • Voluntary administration
  • Placed into Liquidation
  • Voluntary Liquidation
  • Receivership
Glenn Duker, lawyer and solicitor, explains these terms.

Glenn Duker
Voluntary administration

A company is placed into voluntary administration for the purpose of assessing its viability and whether it can continue to trade and pay creditors. This is an insolvency procedure where an administrator, who is a person external to the company, is appointed to manage it during this period. The administrator will be in charge of the company’s assets and affairs, report to ASIC, assist in preparing a Deed of Company arrangement, report to creditors and determine if the company should be wound up.

Voluntary liquidation

Voluntary liquidation is when the members of the company no longer want the company to continue trading. The liquidation is not forced upon the company by the court and a company in this state is not insolvent.

Placing a company into liquidation

A company is placed into liquidation if it is insolvent – meaning it is unable to pay the debts owed.
Once the company is placed into liquidation, a liquidator is appointed to assess the assets of the company. All remaining assets will be sold and reported to ASIC and creditors. The funds gained will then be distributed amongst creditors and shareholders and finally, the company will be deregistered.


A company will go into receivership when an independent receiver is appointed by a secured creditor to take control of some or all of the company’s assets. The receiver is tasked with collecting and selling enough of the charged assets to repay the debt owed to the creditor.

If your company is facing financial difficulty and you require expert legal advice, please get in touch with lawyer and solicitor Glenn Duker today.

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