The sleepless nights. The constant calls from creditors. The sinking feeling every time you check the bank account.
When your business is in financial distress, deciding whether to appoint a liquidator is a deeply personal and often heartbreaking choice. You’ve poured years of hard work into this company, but now the numbers don’t add up, and the weight of responsibility to employees, creditors, and your own future feels crushing.
In these moments, timing matters more than you think. Appointing a liquidator too late can close doors that might have stayed open. Acting at the right time and with the right guidance can protect your reputation, limit losses, and give you a sense of control in a difficult situation.
Recognising the Signs of Insolvency
You only get one chance to act at the right time. Spotting the early signs of insolvency (i.e., when your business can no longer pay its debts on time) can mean the difference between protecting what’s left and watching it all unravel.
Cash flow issues and unpaid debts
Cash flow problems are the cause of most business failures, with ASIC showing it as the main reason in 51% of cases. You should keep an eye out for these warning signs:
- Your business always hits the overdraft limit
- You struggle to pay bills, suppliers, or wages when they’re due
- Creditor payments keep falling outside trading terms
- You make rounded payments that don’t match actual invoices
- Your cheques bounce or payments get dishonoured
Australian law says these signs show your business can’t meet its financial obligations. Spotting these problems early gives you a better chance to fix them with a strong plan.
Repeated ATO or supplier pressure
Many struggling businesses don’t pay their taxes to save cash. Look out for:
- Late or missing BAS returns
- Tax payments and super that you haven’t paid
- Creditors sending multiple payment demands
- Suppliers who’ll only deal with cash on delivery
- Creditors taking legal action or sending statutory demands
The ATO becomes the last-resort lender through unpaid taxes. In spite of that, directors face serious personal risks with this approach.
Inability to meet financial obligations
Financial problems show up in many ways:
- Your business loses money quarter after quarter
- Liquidity ratios drop below 1 (current assets don’t cover current liabilities)
- You can’t get more capital or secure financing
- Your relationship with the bank turns sour
- You keep hoping the next big contract will fix everything
Your business showing several of these warning signs means you should talk to professional liquidators as soon as possible. Directors who keep trading while insolvent risk personal liability for company debts.
As experienced, registered liquidators, SV Partners have guided countless Australian directors through the most difficult stages of insolvency. We understand the pressure you’re under, and we work quickly to assess your situation, explain your options, and protect you from unnecessary personal and financial risk. With clear advice and a structured process, we help you take control and move forward no matter how complex your circumstances.
Who Can Appoint a Liquidator and How
Company directors facing financial distress should understand the process of appointing a liquidator. The appointment method depends on specific circumstances and falls into two distinct categories.
Voluntary vs court-appointed liquidators
Australian law provides two paths to liquidation: voluntary liquidation and court liquidation. Shareholders initiate the process in voluntary liquidation, which makes it the most common choice. The court appoints a liquidator in court liquidation after receiving an application from an unpaid creditor.
Creditors’ voluntary liquidation starts when shareholders of an insolvent company decide to liquidate and pick a liquidator. Creditors might also vote to liquidate after voluntary administration. Directors get more control over timing and liquidator selection through this approach.
Role of directors and shareholders
Directors who want to start liquidation must hold a meeting where members vote on winding up the company and choosing a liquidator. They need to determine the company’s insolvency first and then schedule a shareholder meeting to think over appointing a liquidator.
Directors must give up their powers once a liquidator takes charge. They still have vital responsibilities that include:
- Providing details of company property location
- Delivering company property in their possession
- Supplying all books and records
- Preparing a written report about the company’s affairs
- How to appoint a liquidator legally
Appointing a liquidator follows a formal process:
- Confirm insolvency – First, determine whether your company is truly insolvent or likely to become insolvent and unable to pay its debts on time.
- Acknowledge and act – Directors must formally recognise the insolvency and arrange a shareholder’s meeting to begin a creditors’ voluntary liquidation.
- Court-initiated liquidation – If creditors issue a formal demand and payment remains outstanding, they can apply to the court through a solicitor. In some cases, directors, shareholders, or ASIC can also file a winding-up application.
- Appoint an approved liquidator – ASIC must approve the registered professional who will serve as liquidator.
- Notify ASIC – Once appointed, the company must notify ASIC.
- Liquidator’s role – The liquidator takes control of the company’s affairs, sells its assets, and distributes the proceeds to creditors in the correct order of priority.
What Happens After the Appointment of a Liquidator
Your company enters a critical phase when a liquidator takes charge. This appointment starts an orderly winding-up process that protects creditors’ interests.
Immediate effects on directors’ powers
Directors lose control of the company the moment a liquidator steps in. You can no longer make decisions or use your powers for the business as a director. Your duties remain active despite this loss of authority. You must:
- Provide details about company property locations
- Deliver any company property in your possession
- Supply all books and records
- Prepare a written report about the company’s affairs
Directors must cease all trading activity when liquidation starts. Criminal charges could follow if you continue trading during liquidation.
Liquidator’s control over company assets
The liquidator becomes the company’s new controller and takes charge of all affairs. They focus on protecting, collecting and selling company assets.
The liquidator will break down:
- The company’s business operations and financial circumstances
- Any assets worth recovering for creditors’ benefit
- Potential claims against directors or shareholders
- Possible breaches of directors’ duties
- Transfers of assets that might be recovered
Liquidators can only distribute assets to creditors and direct shareholders of the company. Their main duty serves all company creditors, and shareholders receive returns only after all creditors get paid in full.
Initial reports and creditor meetings
The liquidator must provide a statutory report to creditors within three months of appointment. Creditors receive notification of the appointment within 10 business days in a creditors’ voluntary liquidation.
Creditors have these most important rights throughout the process:
- Requesting information, reports or documents
- Directing that meetings be held
- Giving directions to the liquidator
- Appointing a reviewing liquidator
- Removing and replacing the liquidator
Liquidators can hold meetings anytime but only need to call them for specific approvals. They must lodge detailed lists of receipts and payments with ASIC every year during the liquidation.
SV Partners’ experienced company liquidators can help you navigate this complex process and meet all legal requirements properly.
How Liquidation Affects Stakeholders
Liquidation affects many stakeholders in your company. Each group faces different challenges during this process.
Impact on employees and entitlements
Employees lose their jobs and become company creditors during liquidation. The good news is that employees get paid before ordinary unsecured creditors. The Fair Entitlements Guarantee (FEG) helps eligible employees with financial support that covers:
- Wages (up to 13 weeks of unpaid wages)
- Annual leave and long service leave
- Payment in lieu of notice (maximum of 5 weeks)
- Redundancy pay (up to 4 weeks per full year of service)
Keep in mind that FEG doesn’t cover unpaid superannuation contributions. More information regarding FEG can be found here.
Creditor claims and legal proceedings
Unsecured creditors can’t start or continue legal action against the company without court approval once liquidation starts. They need to submit a “proof of debt” to the liquidator to confirm their claims. Creditors keep their rights throughout the process. They can ask for information, call meetings, and even change the liquidator if needed.
Finalisation and deregistration process
The company stops existing as a legal entity after paying creditors and completing deregistration. This means:
- Company property becomes ASIC’s responsibility
- Former officeholders lose rights to company assets
- Legal proceedings with the company must stop
You should talk to experienced company liquidators to guide you through this complex process. They’ll help all stakeholders understand their positions and entitlements better.
Turn a Difficult Decision Into the Right One with SV Partners
Making the decision to appoint a liquidator is never easy, but it can be the most responsible step you take as a director. Acting early, when warning signs first appear, gives you more control, more options, and a better chance of protecting employees, creditors, and your own position.
If you’re seeing signs like mounting tax debt, persistent cash flow problems, or ongoing losses, don’t wait for the situation to spiral. Liquidation isn’t failure; it’s a structured, lawful way to settle debts, protect entitlements, and close an unsustainable business with dignity.
At SV Partners, we understand both the legal complexities and the personal strain involved. Our registered liquidators guide you through every step, from the initial assessment to the final resolution, ensuring your obligations are met and your risks are minimised. We move quickly, communicate clearly, and work to achieve the best possible outcome in difficult circumstances.
Are you concerned about your financial position? Contact us now for an obligation-free consultation with our specialist team.
