What is a liquidation?
Liquidation is the orderly winding up of a company’s affairs. It involves realising the company’s assets, cessation or sale of its operations, distributing the proceeds of realisation among its creditors and distributing any surplus among its shareholders. The two types of liquidation for an insolvent company are:
- Court liquidation,
- Creditors’ voluntary liquidation.
A creditors voluntary liquidation is a liquidation initiated by the company. A court liquidation starts as a result of a court order, made after an application to the court, usually by a creditor of the company.
What is the liquidator’s role?
When a company is being liquidated because it is insolvent, the liquidator has a duty to all the company’s creditors. Their role is to:
- Collect, protect and realise the company’s assets;
- Investigate and report to creditors about the company’s affairs, including any unfair preferences that may be recoverable, any uncommercial transactions that may be set aside and any possible claims against the company’s officers;
- Enquire into the failure of the company and possible offences by people involved with the company and report to ASIC accordingly;
- Distribute the proceeds of realisation after payment of the costs of the liquidation and subject to the rights of any secured creditor – first to priority creditors, including employees, and then to other unsecured creditors;
- Apply for deregistration of the company on completion of the liquidation.
Except for lodging documents and reports required under the Corporations Act, a liquidator is not required to do any work unless there are enough assets to pay their costs.
Will I get paid in a liquidation?
In most cases, the liquidation of a company terminates the employment of employees. Employees have the right, if there are funds left over after payment of the fees and expenses of the liquidator, to be paid their outstanding entitlements in priority to other unsecured creditors. Priority employee entitlements are grouped into classes and paid in the following order:
- Outstanding wages and superannuation
- Outstanding leave of absence (including annual leave and sick leave, where applicable, and long service leave)
- Retrenchment pay
Each class is paid in full before the next class is paid. If there are insufficient funds to pay a class in full, the available funds are paid on a pro rata basis (and the next class or classes will be paid nothing). The priority claims of directors and their spouses or relatives for the period they are a director, spouse or relative of a director are limited to a maximum of $2,000 for outstanding wages and superannuation and $1,500 for outstanding leave entitlements. Directors and their spouses or relatives are not entitled to any priority retrenchment pay for the period they are a director, spouse or relative of a director. Employees may also be entitled to make a claim against the Fair Entitlements Guarantee (FEG) where the employer insolvency events occurred on or after 5 December 2012 – or General Employee Entitlements and Redundancy Scheme (GEERS) where the employer insolvency events occurred before 5 December 2012. If the liquidator continues to trade the business for a short period to help in the winding up, employee entitlements accrued during this period (on terms agreed with the liquidator) are paid out of available assets as a cost of the winding up and before other outstanding employee entitlements.
How do I get paid in a liquidation?
Before any amount is paid to you for your outstanding entitlements, you will need to give the liquidator sufficient information to prove your debt. The relevant form is called a ‘proof of debt’, and can be obtained from the liquidator. The liquidator will notify you if there are likely to be funds available for distribution and will call for proofs of debt to be lodged. The liquidator may be able to tell you what the company records state is owed to you. However, as the records of a company in liquidation are often not well maintained, it is important that you keep your pay records or other records of the terms of your employment. You may also need these records to help you complete your income tax return and establish your entitlement to FEG or GEERS. If company records are inadequate and you have insufficient information to justify your claim, it may be rejected. When submitting your claim, ask the liquidator to acknowledge receipt of your claim and advise if any further information is needed. If you have a query regarding the calculation of your claim, or the timing of the payment, discuss this with the liquidator. If the liquidator rejects your claim and you are dissatisfied with the decision, your first step should be to promptly contact the liquidator to see if you can resolve the matter. If you can’t, you have a limited time to appeal to the court. The liquidator will notify you of this time in the notice of rejection. It must be at least 14 days after you receive the notice. The court has the power to extend the time to appeal. If you don’t appeal within this time, the liquidator’s decision on your claim is final.
What are the Fair Entitlements Guarantee (FEG) and the General Employee Entitlements and Redundancy Scheme (GEERS)?
Employees who are owed certain employee entitlement after losing their job because their employer went bankrupt or into liquidation may be able to get financial help from the Australian Government. This help is available through either the Fair Entitlements Guarantee (FEG) or the General Employee Entitlements and Redundancy Scheme (GEERS). On 5 December 2012, the Fair Entitlements Guarantee Act 2012 commenced, establishing the FEG as a legislative scheme to replace GEERS.
Fair Entitlements Guarantee
The FEG is a scheme of last resort, intended to assist employees who have lost their job because their employer entered liquidation or bankruptcy. The FEG will operate in relation to claims for assistance for unpaid employee entitlements for all employer insolvency events that occur on or after 5 December 2012. For more information about the FEG visit www.deewr.gov.au/feg, call the FEG Hotline on 1300 135 040 or email FEG@deewr.gov.au.
General Employee Entitlements and Redundancy Scheme
GEERS will continue to operate in relation to claims for assistance for unpaid employee entitlements for employer insolvency events that occurred before 5 December 2012. For more information about GEERS visitwww.deewr.gov.au/geers, call the GEERS Hotline on 1300 135 040 or email GEERS@deewr.gov.au. Employer superannuation contributions are not covered by FEG or GEERS. To pursue your outstanding superannuation entitlements, you may wish to contact the Australian Taxation Office.
Do I receive a payment summary or separation certificate ?
Most employees require a PAYG Payment Summary (group certificate) to complete and lodge their income tax return. A Separation Certificate may also be required before an employee who loses their job can apply for social security. If a liquidator pays you any employee entitlements, they must provide you with a PAYG Payment Summary recording the entitlements paid and any income tax deducted. Contact the liquidator to find out if they are going to prepare your PAYG Payment Summary for entitlements paid by the company prior to their appointment and, if so, what period it will cover. The liquidator is not obliged to prepare this. If you can’t obtain a PAYG Payment Summary for any period, contact the Australian Taxation Office on 13 28 61 to find out how to meet your obligations. Also contact the liquidator to find out if they are going to prepare your Separation Certificate. Contact Centrelink on 13 10 21 to find out what you should do if you can’t obtain a Separation Certificate.
Company Liquidation: Save Time and Money with Insolvency Guardian
Liquidation is fundamentally the process of ending a company’s existence through the liquefaction of its structure and assets. If debts exist there will be proportionate distributions in order of priority and precedence of the liquidated assets. Insolvency Guardian offers the cheapest company liquidation process where we let you select a Liquidator from our panel of experts.
- Our panel of Liquidators discount their rates to offer this product to insolvent companies with no assets.
- Our extensive panel exists Australia-wide to offer low cost company liquidations to the people who need our services.
Insolvency Guardian will deliver to you minutes from the liquidator and forms 507 and 509, which are forms that relate to the winding up of a company when doing a Creditors Voluntary liquidation. You will then fill in the forms and send them back to us at which time we will forward them to the liquidator appointed from our panel and the job is done. If there is anything else that the liquidator requires then they will contact you personally and discuss those items with you including any investigations they must carry out by law; however, the end result is the same. You have liquidated your company at the cheapest rate possible and retained possibly the same liquidator you would have just at a cheaper rate using our services. Why? Again, this is because Insolvency Guardian is involved in so many company liquidations we are able to offer the best pricing from a range of liquidators in all states of Australia. As a result of Insolvency Guardian’s pricing with Liquidators across the country, you can now bring your affairs to an orderly end with Insolvency Guardian’s Business Liquidation process. This process is easy and now cost effective so you don’t have to pay a liquidator $10,000.00 to $15,000.00 to liquidate a company that has no assets and minimal creditors. Company liquidation with Insolvency Guardian can start from as little as a fixed price of $5,000!