Liquidation or winding up is the way that a corporation is closed and brought to an end. All of its assets are sold and the money used to pay as many of the bills of the corporation as possible.
Who runs a liquidation?
An independent and suitably qualified person, usually an accountant, is appointed as the liquidator. They have complete control over the corporation.
How does a liquidation start?
There are two ways a liquidation can start:
- members can pass a special resolution at a general meeting to voluntarily wind up the corporation
- the corporation, a creditor, member, director, special administrator or the Registrar can apply to the court for a corporation to be wound up. The court will then decide whether to order a liquidator be appointed.
What does a liquidator do?
Liquidators mostly act for the benefit of creditors. They:
- collect and try to sell the corporation’s assets
- review the corporation’s affairs and report to the creditors—what the liquidator has done, what is still to be done and estimate when the liquidation will be finalised
- may call a meeting of creditors to talk about the liquidation and find out their wishes on particular matters
- try to work out why the corporation failed and identify any possible misconduct and report to the Registrar
- distribute funds to creditors—only if there is money left after the liquidator is paid—but they must follow a particular order of paying creditors
- if all the creditors are paid and there is still money left over, the liquidator must follow these steps:
- check the corporation's rule book and follow any rule there about how surplus assets are to be distributed (Note: Many corporations have rules that say that surplus assets must not be distributed to any member or any person to be held on trust for any member. They often say the money must be given to another organisation with similar objectives as the corporation.)
- if the corporation does not have rule about this then they need to call a meeting of members to pass a special resolution about how to distribute the surplus assets
- if there is no rule and a special resolution cannot be passed, then they must seek an order from the Court about how to distribute surplus assets
- once all the assets are sold and the money paid out the liquidator will apply to the Registrar to deregister the corporation (remove its registration).
How does a liquidation end?
A liquidation ends after the liquidator has sold and distributed all the corporation’s available assets, and reported to the Registrar.
After these things are done, the liquidator can ask the:
- court for an order to end their appointment
- court for an order:
- to end their appointment and
- for the Registrar to deregister the corporation
- Registrar to deregister the corporation if the corporation has insufficient funds to cover the costs of obtaining a court order.