Both insolvency and liquidation are legal processes that businesses can use to address financial difficulties. While the terms insolvency and liquidation are often used interchangeably, they have different meanings.
Insolvency explained
Insolvency describes a situation where a company cannot pay its liabilities when they come due. In other words, the company doesn’t have enough cash to cover its debt payments.
Liquidation explained
On the other hand, liquidation is a formal legal process that allows companies unable to repay their debts to liquidate their assets and pay off their creditors. Insolvency refers to a financial situation that can lead to liquidation, whereas liquidation is a legal state.
There are a few different types of liquidation; however, the two most common are:
- Creditors’ voluntary liquidation – this type of liquidation is entered by the company’s choice through a debtor’s petition
- Court liquidation – using commences through a Court Order upon the application of one of your creditors (also called a creditor’s petition).
It’s important to note that in most cases, liquidation is the last resort – it’s typically only pursued after all other options have been exhausted.
Options for businesses in financial distress
If your business is experiencing financial distress or you are worried your company may be insolvent, it’s essential to obtain professional legal and financial advice as soon as possible. An experienced lawyer will review your situation and advise you of the various options to address the financial distress of your business, such as:
- Voluntary administration
- Receivership
- Creditors voluntary liquidation
- Members voluntary liquidation
- Compulsory liquidation
- Small business restructuring
Seek legal advice from business lawyers in Geelong
As lawyers who service Geelong, Ocean Grove and Torquay, we understand that filing for liquidation can be upsetting and confusing. Reach out to WJM’s team to discuss your options and implement a strategy that protects your creditors’ interests while maximising returns and realisations and potentially pursuing recoveries. Contact WJM by calling 03 5222 2077 or emailing info@wjmlawyers.com.au to start the road to financial recovery.
