Voluntary liquidation is when the firm decides to dissolve itself based on its terms after approval from the company's shareholders. The decision primarily takes place whenever the firm decides that it comes without any reasons to operate any longer if it is possible to continue with the operations. The main factor included here is that the dissolution of the company is not getting ordered by the court at voluntary liquidation in Australia.
Voluntary liquidation enables the firms to terminate the functionings, sell off these assets, and dismantle the corporate structures while paying back the designated creditors based on their seniority.
Voluntary liquidation happens when the company's ownership or the shareholders votes for the resolution to stop their further operations, and the liquidation goes ahead with the shareholder's approval.
Voluntary liquidations in Australia are distinctively different from involuntary ones. These are when the firm is forced into liquidating and selling its assets through company regulations, economic conditions, and court orders.
A company entering into bankruptcy mode is the common kind of involuntary liquidation for public firms. But, for the smaller family-operated companies, divorce or death might result in liquidation.
Let us now look into the reasons for entering into voluntary liquidations.
Bad Operational Conditions or Unfeasible Operations
As they are not forced, voluntary liquidation is sometimes the ideal option for firms with poor operational conditions and unfeasible operations. An instance is if the higher cost of the oil producers foresees the time of the low oil costs for the future. They might voluntarily decide to liquidate even when they are not yet bankrupt.
Tax Relief
Yet another reason to elect this voluntary liquidation in Australia is taken as the benefit of the tax reliefs to shut down, reorganize or even transfer the assets to the yet other firms in exchange for the shares to obtain the firm. It is almost favorable for the target firm since the equity part gets transferred into receiving the favorable tax treatments.
Special Purposes
Another reason that voluntary liquidation might occur is if the company exists for distinctive purposes over time. For instance, creating particular purposes for the entities or the special purpose vehicles as the firm's subsidiary created to carry the financial obligations for isolating the risks. These firms get into voluntary liquidation if they are required any longer.
Departure Of Any Company Executives Or The Founder
Finally, a voluntary liquidation might occur if the company's leading member leaves this company. For instance, if the company's founder leaves with the shareholders who decide to stall the operations. It is general for the firms that got created out of the base whenever they are retiring as the company is expected to function differently.
Voluntary Liquidation Process
Voluntary liquidations often start under the specific event the board of directors outlines. In this instance, the liquidator gets appointed here.
The liquidator is the entity that liquidates the assets on the company's behalf. Whenever these assets are liquidated, they are sold out in the open market for cash and several other equivalents. The liquidators have the legal power to act on behalf o the company across various actions.
Whenever the firm enters its liquidation phase, whether involuntary or voluntary, it will appoint a third-party liquidator to sell its assets for them. These liquidators often have legal authorities acting on behalf of the firm selling the assets while completing the liquidation process. The liquidators are at times referred to as the trustees too.
The liquidators should follow the orders to their obligations. For instance, the highly senior debt levels should receive the cash from the liquidators initially, with the subordinated debt, preferred equity with mezzanine financing, and finally, the equity holders getting cash out of the liquidation.
Closing Thoughts
Finally, voluntary liquidation in Australia is the most strategic decision that the firm might pick to pursue varied reasons. Whether it is for the retiring owners, the realization of the shareholder value, distribution of the surplus assets, or the simplification of the corporate structures will make liquidation the preferred option for winding up the affairs of the company while distributing their assets.
These are even used in succession planning for resolving shareholder disputes or exiting from non-profitable companies. The changes in the business direction, tax considerations, distribution of the accumulated profits, and regulatory changes are common factors leading the company to choose voluntary liquidation. Specifically, the decision that enters into voluntary liquidation should often be considered carefully considering the shareholders and the company's distinctive circumstances and aims.
