When a company is placed into liquidation, what happens is a crucial sequence of events. First, a liquidator is appointed, whose job is to take over the company’s unsecured assets. Such assets are then sold to raise the funds needed to pay off the creditors. 

In the case of trading companies, there are instances when they might need to shut down, although there are other times when they are allowed to continue to operate for a short time, just until the business is sold. And finally, when the liquidation is accomplished, the company is finally removed from the business registry.

Liquidation can have different effects on the people in the company, depending on their position in the organization. For instance, you can’t expect the liquidation to have the same effects on both the company’s board of directors and the regular employees.

Effects on Liquidation on a Company’s Directors

First, directors are obligated to accomplish a form, stating the following: a brief company history, its trading details, details of the company’s failure and specific reasons why it happened, assets and liabilities, important shareholder information, and any legal claims involving the company (whether by or against). 

Upon providing such information, it is also the directors’ responsibility to help Sydney liquidators find all crucial records and assets as well as answer any questions they might have about the company’s business transactions and operations. Moreover, directors are forbidden by law to remove, hide, or destroy property and records. Violations to this stipulation can incur penalties such as fines and even imprisonment. 

Effects of Liquidation on Employees

If a business is allowed to operate and then is sold, there is a chance that employees may keep their jobs. However, if the company is shut down, then it also means one thing: the employees will have to let go. 

In the case of employees who have lost their jobs, they have the right to file a claim so they can be given due compensation, which can come in the form of their salary, back wages, holiday pay, bonuses, etc. Employees’ claims are usually considered preferential, in that they are often given priority over unsecured creditors’ claim when funds become available. Laid-off employees may also avail of emergency financial assistance from the government while they’re still looking for new jobs. 

Effects of Liquidation on Creditors

Here’s one important note: unsecured creditors are not allowed to take legal action against a liquidated company or even deal with its property and assets unless they seek permission from either the liquidator or the court. 

Secured creditors, on the other hand, may deal with the business’s secured assets. They may also appoint a receiver, if one hasn’t been appointed yet. Any surplus left after the sale of the company or its assets may be paid to the liquidator, who must then create a report to all creditors, highlighting the company’s current financial position at the date of liquidation. 


How Can Liquidation Affect a Company as a Whole?