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
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.
Receivership
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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