Guide Overview
RSSG
Comparative table of Australian and international liquidation processes
Major restructuring destinations each provide distinct mechanisms for rehabilitating companies in distress. Our table sets out the similarities and differences in the processes available in Australia, England & Wales, Hong Kong, Singapore, and the USA.
| Australia | England & Wales | Hong Kong | Singapore | USA | |
|---|---|---|---|---|---|
| Is insolvency always required? | No, both solvent and insolvent liquidations can occur. | No, both solvent and insolvent liquidations can occur. | No, both solvent and insolvent liquidations can occur. | No, both solvent and insolvent liquidations can occur. | No, both solvent and insolvent liquidations can occur. |
| What forms of liquidation are available? | Compulsory liquidation: An application is made to the court to wind up the company, and an order is made by the court to liquidate the company. Creditors' voluntary liquidation (CVL): After a company becomes insolvent, the members can resolve to wind up the company. Members' voluntary liquidation (MVL): If the directors believe the company will be able to pay its debts within 12 months of commencement of the liquidation, then the members can resolve to wind up the company. | Compulsory liquidation: A petition is made to the court to wind up the company, and an order is made by the court to liquidate the company. CVL: After a company becomes insolvent, the members can resolve to wind up the company. MVL: If the directors believe the company will be able to pay its debts within 12 months of commencement of the liquidation, then the members can resolve to wind up the company. | Compulsory liquidation: A petition is made to the court to wind up the company, and an order is made by the court to liquidate the company. CVL: After a company becomes insolvent, the members can resolve to wind up the company. MVL: If the directors believe the company will be able to pay its debts within 12 months of commencement of the liquidation, then the members can resolve to wind up the company. | Compulsory liquidation: An application is made to the court to wind up the company, and an order is made by the court to liquidate the company. CVL: After a company becomes insolvent, the members can resolve to wind up the company. MVL: If the directors believe the company will be able to pay its debts within 12 months of commencement of the liquidation, then the members can resolve to wind up the company. | Chapter 7 bankruptcy: An application to the court is made to liquidate the company, and a bankruptcy trustee is appointed to liquidate the property of the company and distribute the proceeds to creditors. |
| Who can initiate the process? | Compulsory liquidation: The company, directors, members, contributories, a liquidator, ASIC or creditors can all apply to the court to commence liquidation. CVL: The members or a liquidator in situations where the company is already undergoing an MVL and the liquidator determines that the company is insolvent. MVL: The directors or members. | Compulsory liquidation: The company, directors, members, contributories, or a designated officer of a magistrates' court. CVL: The directors or members. MVL: The directors or members. | Compulsory liquidation: The company, shareholders, liquidators, and creditors. CVL: The directors or members. MVL: The directors or members. | Compulsory liquidation: The company, members, directors, judicial manager, liquidator, or creditors. CVL: The company, directors or members. MVL: The company, directors or members. | The members or creditors (by application to the court). |
| Role of the court in commencing the procedure and approving the plan | Compulsory liquidation: The court hears the application for winding-up, and passes orders commencing the liquidation. CVL & MVL: No mandatory role in either situation, although the court has various ancillary powers exercisable on application. | Compulsory liquidation: A winding-up petition is presented to the court, and then a hearing is conducted where the court may make an order for the winding-up. CVL & MVL: No mandatory role in either situation, although the court has various ancillary powers exercisable on application. | Compulsory liquidation: A winding-up petition is presented to the court, and the court passes a wincing-up order against the company if the court is satisfied that the grounds for winding-up are established. CVL & MVL: No mandatory role in either situation, although the court has various ancillary powers exercisable on application. | Compulsory liquidation: The court hears the application for winding-up, and passes order commencing the liquidation. CVL & MVL: No mandatory role in either situation. Notably, the court may terminate or stay all forms of winding up on the application of a liquidator or creditor. | If the company voluntarily files for Chapter 7 liquidation, a petition is filed with the bankruptcy court, and the court's involvement ends. If the petition is filed involuntarily by the company's creditors, the bankruptcy court adjudicates the petition, and if the company objects to the petition the court will hold a hearing. Upon the adjudication or hearing, the court may order the company into Chapter 7 bankruptcy. The trustee in liquidation can object to claims brought by creditors before the bankruptcy court, and the court will hear those claims and objections. |
| Committee of creditors? | Referred to as a "committee of inspection". Liquidator must have regard to the directions of the committee but does not have to adhere to them. | Referred to as a "liquidation committee". Liquidator must have regard to the directions of the committee but does not have to adhere to them. | Referred to as a "committee of inspection". Liquidator must have regard to the directions of the committee but does not have to adhere to them. | Referred to as a "committee of inspection". Liquidator must have regard to the directions of the committee but does not have to adhere to them. | Referred to as a "creditors committee". Liquidator must have regard to the directions of the committee but does not have to adhere to them. |
| Moratorium on claims against the company? | Upon liquidation, an automatic moratorium on claims against the company applies. However, secured creditors who are entitled to enforce a security interest in the whole, or substantially the whole, of the property of the company retain the right to appoint a receiver and may also enforce their security despite the moratorium. | No, although in a compulsory liquidation, there is a stay on proceedings against the company without the leave of the court. | No, although in a compulsory liquidation, there is a stay on proceedings against the company without the leave of the court. | Upon liquidation, an automatic moratorium applies on claims against the company, although this does not prohibit secured creditors from enforcing their security. | Yes, an automatic stay is immediately effective, prohibiting claims being made against the company. Importantly, this stay applies to secured creditors. |
| Does the liquidator have the ability to disclaim contracts? | Liquidator has power to disclaim certain property and unprofitable contracts. | Yes, liquidator has power to disclaim onerous property or contracts. | Yes, liquidator has power to disclaim onerous property or contracts. | Yes, liquidator has power to disclaim onerous property, which includes unprofitable contracts. | No. |
| Does the liquidator have the ability to avoid prior transactions? | Yes, the liquidator can avoid pre-liquidation transactions on numerous bases, including:
| Yes, the liquidator can avoid pre-liquidation transactions on numerous bases, including:
| Yes, the liquidator can avoid pre-liquidation transactions on numerous bases, including:
| Yes, the liquidator can avoid pre-liquidation transactions on numerous bases, including:
| Yes, the trustee can avoid pre-liquidation transactions on numerous bases, including:
|
| Can directors be held personally liable for the company trading while insolvent? | Yes (referred to as 'insolvent trading'). | Yes (referred to as 'wrongful trading'). | No. | Yes (referred to as 'wrongful trading'). | No. |
| Do employee entitlements rank above floating charges? | Yes. (Note that floating charges are now referred to as security interests in circulating assets.) | Yes, employees are 'preferential creditors' for arrears of wages, accrued holiday pay, unpaid contributions to occupational pension schemes and state scheme premiums, all within certain limits. To this extent, employees' claims will rank above floating charges. | Yes, employee entitlements (subject to limits) will rank above floating charge holders. | Yes, employee entitlements (subject to limits) will rank above floating charge holders. | Yes, employee entitlements will rank above unsecured claims. |
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