Quick answer
Liquidation is the formal process of closing an Australian company. A registered liquidator takes control, sells the company's assets, investigates how it was run and pays creditors in a set legal order before the company is deregistered. Most liquidations involve insolvent companies, but solvent ones can be wound up too. Personal guarantees given by directors aren't cancelled by the company's liquidation.
Key points
- Three main routes: members' voluntary (solvent), creditors' voluntary and court-ordered
- Secured creditors and employees rank ahead of ordinary unsecured creditors
- A director's personal guarantee stays enforceable after the company is wound up
- Small companies with liabilities of $1m or less may qualify for simplified liquidation
When a company is liquidated, it stops trading for good. A registered liquidator replaces the directors in control, sells off the company’s assets, and divides the proceeds among the people it owes. Once the job is finished, ASIC removes the company from its register.
You’ll also hear “liquidate” used loosely, as in liquidating old stock or liquidating an investment. That just means selling it for cash. This page is about the formal process.
What are the types of liquidation?
| Type | Who starts it | Company’s position |
|---|---|---|
| Members’ voluntary | Shareholders | Solvent: debts can be paid in full |
| Creditors’ voluntary | Directors and shareholders, or creditors after a voluntary administration | Insolvent |
| Court liquidation | A court order, usually on a creditor’s application | Insolvent |
A creditors’ voluntary liquidation is by far the most common. Court liquidations often begin with an unpaid statutory demand, and the 21-day window that follows is covered in our guide to handling a statutory demand.
Who gets paid, and in what order?
A secured creditor holding a mortgage or a general security agreement can deal with its own security, either directly or through the liquidator. After that, the liquidator’s costs come out, then priority claims, chiefly employee entitlements. Ordinary unsecured creditors, like suppliers, are paid last, and only if money is left. No class sees a cent until the one above it is fully covered, so unsecured creditors often get cents in the dollar or nothing.
The liquidator also looks backwards. Payments made to one creditor ahead of others shortly before the liquidation can be clawed back as unfair preferences. The usual look-back is six months. Under simplified liquidation it shrinks to three months, and only payments of $30,000 or more are pursued.
Why does liquidation matter to borrowers?
Three things catch owners out.
- Guarantees survive. The company’s debts don’t become the director’s just because it’s wound up, unless the director signed a personal guarantee. Most small business loans require one, so the lender can chase you for any shortfall.
- Directors have work to do. In a creditors’ voluntary liquidation, directors must hand the liquidator a report on the company’s activities and property within five business days. The liquidator can also look into whether the company traded while insolvent.
- It shows up later. A future lender will ask about past companies, and a quick ASIC search turns up any external administration.
Where a wound-up company sits in your past, see how lenders weigh that history on our bad credit business loans page. You can also tell us your story in a short enquiry.
Worked example: a café company wound up
Here’s an illustrative case. A Hobart café company closes owing $420k. The bank is owed $180k under a loan backed by a general security agreement and the director’s guarantee. Staff are owed $35k, and suppliers and the landlord are owed $205k between them.
The liquidator sells the fit-out and equipment for $90k. The bank, as secured creditor, receives the net proceeds of its security. After the liquidator’s costs, what’s left goes towards employee entitlements, and the suppliers receive nothing. The bank is still about $95k short, so it turns to the director under the guarantee. Because the company’s liabilities were under $1m and its lodgements were current, it qualified for simplified liquidation, which lowered the cost of the process.
Related terms
- Receiver: appointed by a secured creditor to recover its debt, sometimes alongside a liquidator
- Small business restructuring: the rescue route many owners consider before liquidation
- Secured creditor and unsecured creditor: where each stands in the queue
- Solvency: the test that decides which kind of liquidation applies
Starting again after a company closed?
A wound-up company is hard on the people behind it, but it doesn’t have to end your chances of borrowing. Many owners go on to fund a new venture once they can show steady trading or offer property as security. Our enquiry form takes about a minute. Submitting it doesn’t touch your credit history, and we keep what you tell us rather than circulating it to a crowd of funders. A person on our team goes through your circumstances and rings you back. Be open about the earlier liquidation, because that lets us suggest a lender that will actually consider it.
Frequently asked questions
What is the difference between liquidation and bankruptcy?
Liquidation applies to companies. Bankruptcy applies to individuals, including sole traders and partners. A sole trader can't be liquidated because the business and the owner are legally the same person.
Can a creditor force my company into liquidation?
Yes. A creditor owed money can apply to court for a winding-up order. This usually follows an unpaid statutory demand, which gives the company 21 days to pay or have the demand set aside before insolvency is presumed.
Do I still owe the bank if my company is liquidated?
The company's debt doesn't vanish for you if you signed a personal guarantee. The lender can claim the shortfall from you as guarantor, and where the guarantee is secured over your home, it can look to that property.
Can I get a business loan after a previous company was liquidated?
Often, yes, though it depends on how long ago it was, whether any guarantees were left unpaid and how your new business is trading. Banks tend to be cautious, while some non-bank and property-secured lenders will look at the full story.
What is simplified liquidation?
A streamlined creditors' voluntary liquidation available to eligible companies since 1 January 2021. Liabilities must be no more than $1m, tax lodgements must be up to date, and the company and its directors can't have used restructuring or simplified liquidation in the previous seven years.