Can a Company Trade While in Liquidation in Australia?

Liquidation in Australia | Curious about whether a company can trade while in liquidation? Learn about its legal obligations and risks in this blog.
liquidation in Australia

Can a Company Trade While in Liquidation?

Liquidation in Australia is a dreaded word that sends shivers to business owners, creditors, and shareholders alike. 

When a company is nearing its financial ruin, the only ray of hope often seems to be the process of liquidation. 

But what happens to the company’s ability to trade during this difficult time? Can a company continue to conduct business while undergoing liquidation? 

In essence, the answer is a resounding yes! A company can indeed trade while in liquidation, and this may come as a surprise to many. However, the process is not as straightforward as it seems, and there are some critical aspects to consider.

Trading Under Liquidation in Australia

When a company enters liquidation, it is essentially surrendering control over its assets to a liquidator, whose primary duty is to realize these assets and distribute the proceeds to creditors. 

While the company can continue trading, the liquidator takes the helm and ensures that the trading activities align with the best interests of creditors.

The Liquidator’s Role

The appointment of a liquidator is not just a formality. Liquidators are professionals with a fiduciary duty to ensure that the liquidation process is executed fairly and transparently. 

They oversee the company’s trading activities during liquidation to protect the interests of creditors. Their role is to maximize the value of the company’s assets for the benefit of all stakeholders.

Continuing Trading Operations

The ability to trade during liquidation depends on the nature of the business and whether it is profitable or has the potential to generate income. 

If the business is viable and can generate revenue, trading may be encouraged to fund the liquidation process and repay creditors.

Supervision and Control

While the company can continue trading, it does so under the watchful eye of the liquidator. The liquidator ensures that all transactions are in the best interests of creditors and that no assets are dissipated or unduly depleted during this period. 

Restrictions and Limitations

Not all business activities can continue during the process of liquidation. Some operations are scaled down or ceased entirely if they are not financially viable or are deemed detrimental to the creditors’ interests. In this case, the liquidator has the authority to make these decisions.

Transparency and Accountability

Transparency is key during the liquidation process. Creditors, shareholders, and other stakeholders are entitled to regular updates on the company’s financial status and the progress of the liquidation. This transparency ensures that everyone involved can assess whether the liquidation is being handled properly.

Trading to Satisfy Debts

In some cases, trading during liquidation can be a strategic move to repay outstanding debts. By generating income, the company can pay off creditors in part or in full. This involves selling assets, settling liabilities, and negotiating with creditors.

Potential for Business Rescue

In some instances, a company may trade its way out of insolvency, allowing it to avoid liquidation altogether. This is often seen as a preferable outcome, as it preserves the business and saves jobs. However, it requires careful planning and execution.

Legal Obligations and Compliance

The company must continue to comply with all legal obligations, including tax payments, employee wages, and any other statutory requirements. Failing to do so can lead to further legal complications.

Take Note 

In conclusion, companies typically do not have the chance to persist in trading during this phase, but there are exceptions. And when it does operate, it must be under strict supervision and with a primary focus on serving the best interests of creditors. 

Trading during liquidation can be a lifeline for struggling companies, providing a means to repay debts and preserve some value for stakeholders. 

However, you must approach this process with utmost caution, transparency, and accountability to handle the complexities of liquidation successfully. 

There are risks when your company or business is trading while liquidation. So, ensure to consult qualified insolvency advisors to determine what actions to take in this course. 

For expert advice, call AVA Advisory today at 1300 181 220 or book a free consultation.

 

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