Also known as compulsory winding up, court liquidation is a formal process where a creditor applies to the Supreme Court to have a company placed into liquidation. Ordinarily, if a creditor is owed more than $2,000 and the business has failed to respond to a statutory demand within the required timeframe, the creditor can commence the process.
It differs from voluntary liquidation, where a company’s directors or shareholders will initiate proceedings. Court liquidation, on the other hand, is imposed by the legal system and will see the appointment of an official liquidator.
It is often the last resort for creditors recovering outstanding debts and can have serious consequences for directors and stakeholders.
How the Court Liquidation Process Works
Once an application is approved by the court, an official liquidator is appointed to take control of the business. From here, the powers of directors cease and the liquidator will begin investigating the company’s affairs and realising its assets.
Each party has different responsibilities:
Liquidators:
Secure and assess the company’s assets and liabilities
Investigate the company’s financial history and transactions
Identify potential breaches of directors’ duties or insolvent trading
Distribute any available funds to creditors in accordance with statutory priorities
Report findings to creditors and to the Australian Securities and Investments Commission (ASIC)
Creditors:
Receive notice of the liquidation and be invited to lodge a proof of debt
May attend creditor meetings (if held) or request reports on progress
Receive payment if there are sufficient funds after costs and priorities
May be asked to vote on decisions relating to the conduct of the liquidation
The process follows a strict timeline and the liquidator must act independently and in the best interests of all creditors. For directors, the process marks the end of control over the company’s affairs and could initiate regulatory scrutiny of prior conduct.
Consequences for Directors and Creditors
Directors and creditors will be impacted by court liquidation in different ways:
For Directors:
You lose all management powers once a liquidator is appointed
You are legally required to cooperate with the liquidator, including providing company records and financial information
You may be investigated for conduct prior to liquidation
In serious cases, ASIC may consider director disqualification or legal action
For Creditors:
There is no guarantee of full repayment and returns will depend on the company’s remaining assets
Secured creditors have priority over certain assets, while unsecured creditors receive a share of the remaining funds
Employee entitlements are prioritised under the Corporations Act
If you would like to gain a clearer picture of you entitlements and role in a court liquidation, get in touch with our team.
HLB Mann Judd’s Role in Court Liquidation
As a registered liquidator, HLB Mann Judd Insolvency WA is well equipped to handle complex and sensitive court liquidation matters. We have been appointed as liquidator on several occasions, assisting WA directors and creditors in winding up businesses.
We can also assist directors and creditors prior to court proceedings, offering practical advice that helps you understand your rights and risks and decide whether court liquidation is appropriate for your situation.
As either a court appointed liquidator or an advisor, our team will:
Conduct thorough investigations and statutory reporting
Make clear to creditors and other stakeholders their rights and obligations
Manage distributions in line with legal priorities
Ensure full compliance with regulatory obligations
What to Do If You’re Facing a Winding Up Application
If you have received a statutory notice or are aware of a creditor filing a winding up application, it’s important to act quickly and seek prompt advice. Ignoring the process or delaying your response can will only reduce your options and expose you to a greater personal risk.
We recommend:
Creditors:
If you are owed money and considering legal action to recover it, our team can assist in determining whether court liquidation is appropriate and guide you through the subsequent process.
Directors
Review your position and speak with an insolvency or restructuring advisor, such as HLB Mann Judd Insolvency WA, immediately. Early engagement may allow the time to explore voluntary options and respond before court orders are issued.
HLB Mann Judd can facilitate voluntary options such as:
Arrange a Cost and Obligation Free Consultation with HLB Mann Judd Insolvency WA
Whether you are a director responding to court action or a creditor seeking to recover unpaid debts, HLB Mann Judd can provide practical, experienced guidance at every stage.
To speak with us further regarding court liquidation and whether it is appropriate in your situation, please arrange a cost and obligation free consultation.
