As an insolvency practitioner, I occasionally see the impact that shadow and de facto directors can have on companies.
Section 461(k) of the Corporations Act 2001 (Cth) is a discretionary power of the court to order the winding
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As a company director, it is important to understand the liquidation process, which is a formal insolvency process that leads to the winding up of a company’s affairs.
Here are the key aspects of the liquidation process from a director’s perspective:
- Initiation: A creditors’ voluntary liquidation (CVL) is initiated by a special resolution passed by the company’s shareholders. Once the process has been initiated, the company enters a period of liquidation.
- Liquidator appointment: A Liquidator is appointed to take control of the company and wind up its affairs. The Liquidator’s role is to identify, preserve and sell the company’s assets, pay creditors, investigate any misconduct by directors or officers, and distribute any remaining funds to shareholders.
- Directors’ duties: While the company is in liquidation, the directors’ powers are suspended, and they must cooperate with the Liquidator to help with the winding-up process. Directors must also ensure that the company’s books and records are up to date and that they provide the Liquidator with any necessary information.
- Asset realization: The Liquidator will sell the company’s assets and use the proceeds to pay creditors in order according to the priority regime set out in the Corporations Act. Any remaining funds will be distributed to shareholders in accordance with the company’s constitution or the Corporations Act.
- Investigation: The Liquidator will investigate the conduct of the company’s directors and officers in the lead up to the liquidation and report findings to the Australian Securities & Investments Commission. If any misconduct or breaches of duty are identified, the Liquidator may take legal action to recover losses on behalf of the company’s creditors.
- Finalisation: Once all assets have been sold, creditors have been paid, and any legal action has been resolved, the Liquidator will finalise the company’s affairs and distribute any remaining funds to shareholders.
It is important for directors to seek professional insolvency advice as early as possible in order to mitigate personal financial risks.
To speak with us further regarding whether a Creditors’ Voluntary Liquidation may be appropriate in your situation, please contact us on 08 9215 7900 for a cost and obligation free consultation.