What is Court Liquidation?
A court liquidation is a formal winding up of a company where usually due to unpaid debts. The petition to wind up a company can be presented by creditors, company, members or other interested parties. A liquidator will then be appointed by the court. The main objective is to realise the company’s assets and disburse amount recovered to creditors in accordance with established priorities.
Causes of Court Liquidation
There are a wide range of circumstances that could result in a company being wound-up via the court liquidation. The majority of court liquidations occur when a company becomes insolvent due to an inability to pay its debts. In some cases, the directors may have conducted the affairs of the company in their own interests, instead of in the best interest of the company.
Effects of Court Liquidation
Any disposition of the company’s assets and transfer of shares is prohibited once the company has been placed in liquidation. Business operations will mostly have been ceased and will be placed in the hand of licensed liquidator. When the event of default occurred, secured creditors can exercise their powers to dispose of the company’s assets which have been charged to them as security in order to pay off the debts in accordance with the law.
Roles of the Liquidator
A petitioner can opt to appoint a private liquidator or to appoint the Official Receiver to administer the liquidation process of the company. A private liquidator will be able to effeciently investigate into the affairs of the wound-up company. The liquidator will realise the company’s assets and distribution to creditors will be made accordingly based on the relevant Act.
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