Company liquidation in Australia: a guide for directors

Liquidation is the process in which an independent registered liquidator takes control of a company, sells its assets, investigates its affairs and pays creditors in the order set by law. When the liquidation is complete, the company is deregistered and no longer exists. An insolvent company is usually liquidated through a creditors’ voluntary liquidation or by court order. A solvent company can be closed through a members’ voluntary liquidation.

The types of liquidation

Which type applies depends on whether the company can pay its debts and on who starts the process.

Is liquidation the right option?

Liquidation ends the company. If the business itself is still viable, other formal processes may preserve it: small business restructuring for eligible companies with total debts of $1 million or less, voluntary administration, or a deed of company arrangement. The trade-offs are set out in voluntary administration vs liquidation and DOCA vs liquidation. A company that is solvent and has assets worth less than $1,000 may be able to apply to ASIC for voluntary deregistration instead.

What happens when a company goes into liquidation

The liquidator takes control of the company and has a duty to all of its creditors. Once the company is in liquidation, unsecured creditors cannot start or continue legal action against it unless the court permits. ASIC describes the liquidator’s role in a creditors’ voluntary or court liquidation as:

• protecting, collecting and selling the company’s assets
• investigating and reporting to creditors about the company’s affairs
• inquiring into the company’s failure and reporting possible offences to ASIC
• distributing the proceeds, after the costs of the liquidation, first to priority creditors including employees and then to unsecured creditors.

A company in liquidation can also be in receivership if a secured creditor has appointed a receiver. See receivership.

What directors must do

ASIC’s guide for directors sets out what a director must do to help the liquidator:

• tell the liquidator where the company’s property is and hand over any company property they hold
• give the liquidator the company’s books and records, and say where any other records are kept
• provide a report on company activities and property (ROCAP) within five business days of the liquidator’s appointment in a creditors’ voluntary liquidation, or 10 business days in a court liquidation
• meet with, or report to, the liquidator as reasonably required.

Directors must not obstruct the liquidator. A liquidator can require a director to attend a creditors’ meeting, and can apply to the court to examine a director publicly under oath. ASIC notes that the need for a public examination can often be avoided by cooperating with the liquidator.

What the liquidator investigates

The liquidator reports to creditors on matters that may bring more money into the liquidation, including:

• Unfair preferences: payments to a creditor in the six months before the liquidation began (up to the liquidator’s appointment), made while the company was insolvent, that left the creditor better off than other unsecured creditors. There is no limit on the value that can be recovered.
• Uncommercial transactions that may be set aside.
• Claims against directors and officers, including for insolvent trading.
• Creditor-defeating dispositions: transfers of company property for less than market value that put it out of creditors’ reach, including in connection with illegal phoenix activity.

In a simplified liquidation, payments to an unrelated creditor can only be recovered as unfair preferences if they were made in the three months before the liquidation began and totalled more than $30,000.

Who gets paid, and in what order

Subject to the rights of secured creditors, ASIC states that funds are generally distributed in this order:

1. costs and expenses of the liquidation, including the liquidator’s fees
2. outstanding employee wages and superannuation
3. outstanding employee leave, including annual leave and long service leave
4. employee retrenchment pay
5. unsecured creditors.

Each category is paid in full before the next receives anything. If there is not enough to pay a category in full, it is paid pro rata. For tax debts specifically, see what happens to ATO debt in liquidation.

What creditors receive

Within 10 business days of appointment in a creditors’ voluntary liquidation (20 business days in a court liquidation), the liquidator must tell creditors about their rights, including to request information, direct that a meeting be held and remove and replace the liquidator. Within three months of appointment, the liquidator must send a report covering the company’s estimated assets and liabilities, what happened to the business, possible recovery actions and the likelihood of a dividend. Before paying a dividend, the liquidator must give at least 14 days’ notice of the deadline to lodge a formal proof of debt.

How liquidation ends

When the company’s affairs have been fully wound up, the liquidator lodges the relevant form with ASIC and the company is deregistered three months later. After that, it no longer exists.

What liquidation means for directors afterwards

Liquidation of the company is not the bankruptcy of its directors; see liquidation vs bankruptcy. Directors can, however, face personal exposure through insolvent trading claims, personal guarantees and director penalty notices. ASIC may disqualify a person from managing corporations for up to five years if they were a director of two or more companies that went into liquidation within seven years and paid creditors less than 50 cents in the dollar.

More on liquidation

• Creditors’ voluntary liquidation
• Members’ voluntary liquidation: winding up a solvent company
• How to check if a company is in liquidation
• Strike-off action in progress: what it means
• What happens to ATO debt in liquidation
• Liquidation and director penalty notices
• Insolvent trading
• Registered liquidators: what they do and how to choose one

Common questions

What is liquidation?

Liquidation is the process in which an independent registered liquidator takes control of a company, sells its assets, investigates its affairs and pays creditors in the order set by law. When it is complete, the company is deregistered.

Who can put a company into liquidation?

Shareholders can resolve to wind up the company, creditors can vote for liquidation after a voluntary administration or a terminated deed of company arrangement, and a court can order a company to be wound up on an application, usually by a creditor. Directors, shareholders and ASIC can also apply to the court.

What do directors have to do when a company is liquidated?

Directors must hand over company property and books and records, tell the liquidator where other records are held, provide a report on company activities and property within five business days in a creditors’ voluntary liquidation or 10 business days in a court liquidation, and assist the liquidator as reasonably required.

Can creditors still sue a company in liquidation?

Unsecured creditors cannot start or continue legal action against a company in liquidation unless the court permits.

Is company liquidation the same as bankruptcy?

No. Liquidation applies to companies. Bankruptcy applies to individuals. A company’s liquidation does not make its directors bankrupt, although directors may have personal exposure through guarantees, insolvent trading claims or director penalty notices.

What is simplified liquidation?

Simplified liquidation is a streamlined creditors’ voluntary liquidation for eligible companies with liabilities under $1 million. It has fewer reporting steps, no creditors’ meetings and a narrower test for recovering unfair preferences from unrelated creditors.

Sources: ASIC, Liquidation: a guide for creditors (INFO 45); ASIC, Insolvency for directors (INFO 42); ASIC, Wind up an insolvent company; ASIC, FAQs: simplified liquidation. This page is general information, not advice about your circumstances. Last reviewed: 16 October 2026.