Court Appointed or Official Liquidation
A person may apply to the court for an order that the affairs of a company be wound up in insolvency.
The person taking this action is usually a creditor, and not the debtor company itself, and accordingly, this type of action results in a compulsory winding up or Official Liqudiation.
A company can only be placed into Official Liquidation by the Supreme Court of each state in Australia or the Federal Court of Australia and in both, the court will appoint an Official liquidator.
In most cases, an Official Liquidator will be appointed following a winding up application being lodged by a creditor on the back of an unsatisfied statutory demand.
Statistically, the main creditors that lodge winding up applications through the Courts are the Australian Taxation Office and the various workers compensation insurance providers. Some workers compensation providers include the GIO, Allianz, Employers Mutual, CGU and QBE.
Where a creditor has filed a winding up application with the Court, the directors/members of a company can no longer select a liquidator or voluntarily wind up their company. A company in this circumstances can however appoint a Voluntary Administrator.
If directors appoint a Voluntary Administrator after an application to wind up the company has been filed in Court, the directors will need to demonstrate to the Court that there is a comprehensive proposal for a Deed of Company Arrangement that will result in creditors receiving a better return than if the company was wound up by the Court.
The same role of an Official Liquidator is the same as that for a Liquidator appointed voluntarily by the directors/shareholders. Both must undertake an investigation into the affairs of the company and must, in certain circumstances report breaches of the Corporations Act to the Australian Securities and Investments Commission (ASIC). There are however reasons why people will choose to wind up a company voluntarily.
If an Official Liquidator is appointed to a company without assets, and after investigation, he identifies serious breaches of the Corporations Act by the company director(s), such as phoenix activity, the liquidator can apply to ASIC for funding to carry out more comprehensive investigations under the Assetless Administration Fund.
