A liquidation relates to an insolvent company with the purpose of winding up its affairs by an independent qualified party (liquidator) so that creditors of the company can have a fair chance of recovering debt that is owed to them.
A creditors’ voluntary liquidation is the most common type of liquidation and is the consequence of creditors of the company voting for a liquidation following a voluntary administration or a failed deed of company arrangement (DOCA). A creditors’ voluntary liquidation may also be a result of shareholders of an insolvent company deciding to liquidate the company and appoint a liquidator.
The second type of liquidation is known as a court liquidation. This is where a liquidator is appointed by the court, typically instigated by a creditor’s application to the courts. Directors, shareholders and ASIC can also make an application to the courts to wind up a company.