DCL Advisory

What Is Voluntary Liquidation And What Does It Mean For Your Business?

Press Release   •   Oct 10, 2016 20:11 AEDT

Voluntary Administration ExpertsMorbid as it sounds, Voluntary liquidation is like euthanasia – when all attempts to heal the business fails, the board of directors might opt to voluntarily liquidate (shut down) the business by appointing a 'administrator' to oversea the process. They quite literally “pull the plug” on the business.

There are numerous reasons why a business might fail we don't need to go into each of those. When a business faces financial difficulties there are lots of options available to the directors and shareholders. The easiest options are selected first and later the more difficult ones. Sometimes these options don't help at all or reason for continuation of business cease to exist. For example, if the business is depended on say mining rights for a certain rare mineral and those rights were either taken away or the mineral was exhausted. There might be a million other reasons why a business cannot continue ranging from financial to material supply issues to market related issues. These days war is an added factor and can spell doom and force a business to opt for voluntary liquidation.

Whatever the cause, there are two types of liquidation – Voluntary Receivership Sydney and involuntary. The latter usually happens when the creditors approach the courts usually due to non-payment of their dues. The court goes into the merits of the case and appoints a administrator to investigate and oversea the liquidation process.

When the board of directors decide to shut down or liquidate the business, they hunt for a liquidator (officially called the 'Administrator'). In Australia, experienced and highly proficient administrators are available with accounting service providers such DCL Advisory (http://www.voluntaryadministrationexperts.com.au.).

When an experienced and highly proficient administrator is found he is officially appointed (via a board resolution), as the administrator.

In lay terms, the administrator usually begins by investigating the reasons for the business failure and if he finds that there were financial or other irregularities, he is duty bound to inform the authorities. In either case, he proceeds to stage two which is to evaluate the assets available for disposal and also debtors. Once those are catalogued along with their current market value, he will catalogue all employees and their dues and also all secured creditors and amounts due to them.

Stage three is when he weighs-in whatever resources are available against what needs to paid out. If there is a short-fall, he will call a meeting and try and obtain an agreement from those who are due to be paid, to accept a reduced amount in full settlement of their dues.

Stage four is usually the sale all assets at best prices available and also attempt recovery of monies owed to the business by the debtors. Stage five is the distribution process and stage six is the final dissolution of the business.

Of course, except for the final dissolution which happens only at the end, all these other steps need not be in the same sequence and the administrator is free to choose how he goes about the process and may even opt to combine one or more steps or run several of them simultaneously.

Broadly however, Voluntary Insolvency is an investigation into the reason for the failure followed by selling of the assets owned by the company, followed by distribution of the proceeds of the sale and then the final legal dissolution of the company.

Thomas Dawson Registered Liquidator Thomas has 20 years’ experience as an insolvency and company turn-around specialist with Ernst & Young. We can do bankruptcies and company closures.