The role and duties of liquidators and administrators in the insolvency process in Australia
This chapter examines the role and duties of liquidators and
administrators in the insolvency process in Australia. It is divided into the
following eleven sections:
- the role of an administrator (paragraphs 3.4–3.6);
- the role of a receiver (paragraphs 3.7–3.9);
- the role of a liquidator (paragraph 3.10);
- secured and unsecured creditors (paragraphs 3.11–3.12);
- the voluntary administration process (paragraphs 3.13–3.27);
- deeds of company arrangement (paragraphs 3.28–3.41);
- the process of a receivership (paragraphs 3.42–3.48);
- creditors' scheme of arrangement (paragraphs 3.49–3.50);
- the liquidation or 'winding up' process (paragraphs 3.51–3.83);
- the treatment of employees' entitlements (paragraphs 3.84–3.102);
the 'fit and proper' requirement of the Corporations Act 2001
The administration of companies in financial difficulty
A company is classified as being solvent if, and only if, it is able to
pay all of its debts as and when they become due and payable (subsection
95A(1)), otherwise the company is insolvent (subsection 95A(2)). Where a company
is in financial difficulty and it appears that it may become insolvent (or
already is insolvent), there are several forms of external administration
available whereby control of the company's affairs is taken from the company's
directors and put into external hands. These forms of external administration
- creditors' scheme of arrangement; and
- winding up.
'Winding up' is the terminal mode in the life cycle of a company, which
results in the closure of its operations. Portions of the business may be
resurrected after sale by the liquidator. The other three forms of external
administration may avoid the finality of this outcome.
The role of an administrator—an overview
The role of an administrator is to take control of a company and its
property and to investigate its affairs. An administrator must be a registered
liquidator. The administrator is required to hold an initial meeting of
creditors at which creditors may consider whether a committee of creditors
should be appointed to liaise with the administrator, in order to ensure that
all creditors are kept fully informed. During this meeting, creditors may also
resolve to replace the administrator.
The administrator is also required to call a second meeting of
creditors. Prior to this meeting, the administrator must provide a statement to
creditors outlining the administrator's opinion in relation to what should
happen to the company, the basis of that opinion and any other information
necessary for the creditors to make an informed decision. At this second
meeting, the creditors are able to decide if:
- the company should be wound up;
- the administration should end; or
- the company should execute a deed of company arrangement (section
439C of the Corporations Act 2001).
If creditors resolve to either enter into a deed of company arrangement
or to wind up a company, the administrator may become the administrator of the
deed of company arrangement or the liquidator, depending on the wishes of
creditors (section 446A). 
The role of a receiver—an overview
A receiver is generally appointed by a secured creditor to:
- collect and sell enough of a company's assets to repay a debt
owed to the secured creditor; and
- pay out the money collected in the order required by law.
Receivers must also report to the Australian Securities and Investments
Commission (ASIC) any possible offences or other irregularities that they find.
A receiver's primary duty is to the company's secured creditor. The main
duty owed to unsecured creditors is an obligation to take reasonable care to
sell property for not less than its market value or, if there is no market
value, the best price reasonably obtainable.
The role of a liquidator—an overview
In ordinary circumstances, the role of a liquidator is to take control
of, and to wind up, a corporation. The liquidator may:
- collect, protect and realise the company's assets;
- investigate and report to creditors about the corporation's
affairs, including voidable transactions and claims against the corporation's
- enquire into the failure of the corporation and possible offences
by people involved in the corporation and report to ASIC;
- distribute the proceeds of realisation of assets including
processing claims by creditors—first to secured creditors, then priority
creditors (including employees), followed by unsecured creditors; and
- apply for deregistration of the company on completion of the
Secured and unsecured creditors
A creditor of a company is a person who is owed money by that company.
Usually, a creditor is owed money because they have provided goods or services,
or made loans to the company. An employee who is owed money for unpaid wages
and other entitlements is also a creditor. Generally, there are two basic
categories of creditor:
- a secured creditor is someone who has a charge, such as a
mortgage, over some or all of the company's assets to secure a debt owed by the
company. In particular, lenders usually require a charge over company assets
when they provide a loan; and
- an unsecured creditor is a creditor who does not have a charge
over the company's assets.
Employees are a special class of unsecured creditor. Employees'
outstanding entitlements are usually paid in priority to the claims of other
Voluntary administration was introduced in 1993 to provide an
inexpensive procedure capable of being implemented swiftly (part 5.3A of the Corporations
Act). Voluntary administration provides several options to creditors for
dealing with a financially troubled company. Some possible outcomes of
voluntary administration include:
- ending the voluntary administration and returning the company to
the directors' control;
the company resuming operations but with a deferred or reduced
debt burden under a deed of company arrangement approved by creditors;
a secured creditor exercises its rights to appoint a receiver to
obtain repayment of its debt by disposal of company assets; or
- the creditors vote to wind up the company and appoint a
Voluntary administration seeks to maximise the chances of an insolvent
company surviving or, if it (or parts of it) cannot be saved, to achieve a
better return for creditors and members than would result from an immediate
winding up of the company (section 435A). 
Commencement and effect of
Voluntary administration is usually initiated by the company itself when
directors resolve that:
- in their opinion the company is insolvent or likely to become
insolvent at some future time; and
- an administrator of the company should be appointed (subsection
While a company is under administration, the administrator has control
of the company's property and business (section 437A). The powers of other
corporate officers, including directors, are suspended during the
administration and may not be exercised except with the written approval of the
administrator (subsection 437C(1)). However, company officers are not
removed from their offices by the appointment of an administrator (subsection
It is also possible, although much less common, for a voluntary
administrator to be appointed by a liquidator of a company (section 436B) or by
a substantial chargee: that is, a secured creditor who is entitled to enforce a
charge over the whole, or substantially the whole, of the company's property
(section 436C). A liquidator may appoint themselves (or a partner, employee or
associate) as administrator with the leave of the court or where the
appointment is approved by resolution at a meeting of creditors. If, under
administration, the company then executes a deed of company arrangement, the
court may stay or terminate the winding up. Winding up (liquidation) is
discussed in further detail below.
An administrator must notify secured creditors of their appointment as
soon as practicable, but no later than the next business day (subsection
450A(3)). Soon after an administrator's appointment it is possible for a
substantial chargee to enforce its charge, usually by the appointment of a
receiver (section 441A). An administrator's powers are subject to those of the
chargee and its receiver: if a substantial chargee decides to enforce its
charge it effectively supplants the administration (subsection 442D(1)).
However, if they wish to override the powers of the administrator, a
substantial chargee must enforce its charge in relation to all of the relevant
property—it does not have the option of appointing a receiver to only a part of
the relevant property (subsection 441A(1)(b)). This is generally referred to as
the 'all or nothing' rule, which is justified on the basis that a company's
assets should be administered either by a receiver or an administrator free of
the problems that may arise in a system of divided or competing control of the
assets. Receivership is discussed in further detail below.
If there is no substantial chargee or it does not enforce its charge,
during the period of administration there is a general moratorium upon actions
or proceedings against the company and its property by creditors and owners or
lessors of property used by the company (sections 440A–440D and 440F). This
moratorium is intended to provide a period for investigation and collective
assessment of options without a general scramble for individual recovery. This
generally means that while a company is in voluntary administration:
Chart 3.1: The Voluntary Administration
- unsecured creditors cannot begin, continue or enforce their
claims against the company without the administrator's consent or the court's
- owners of property (other than perishable property) used or
occupied by the company, or people who lease such property to the company,
cannot recover their property;
- except in limited circumstances (for example, where there is a
substantial chargee as discussed above), secured creditors cannot enforce their
charge over company property;
- a court application to put the company in liquidation cannot be
- a creditor holding a personal guarantee from the company's
director or other person cannot act under the personal guarantee without the
court's consent. 
First creditors' meeting
As soon as practicable, an administrator must investigate the company's
business, property and financial circumstances (section 438A), and within
strict but not inflexible time limits, convene two meetings of creditors to
take decisions in relation to the administration. An administrator must convene
the first meeting within eight business days after the voluntary administration
begins. In convening the meeting an administrator must:
- give written notice of the meeting to as many of the company's
creditors as reasonably practical; and
publish a notice of the meeting in an appropriate newspaper
The administrator must send to creditors, with the notice of first meeting,
declarations about any relationships they may have, or indemnities they have
been given, to allow creditors to consider the administrator's independence and
make an informed decision about whether they want to replace them with another
administrator of the creditors' choice.
At this meeting:
a determination is made about whether to appoint a committee of
creditors to consult with (but not give directions to) the administrator
(sections 436E–436F); and
- creditors may replace the administrator with a qualified person
of their choosing (subsection 436E(4)).
The role of a committee of creditors is to consult with the
administrator about matters relevant to the administration and receive and
consider reports from the administrator. The committee can also require the
administrator to report to them about the administration. It may also approve
the administrator's fees.
Proposals to nominate an
A creditor who wishes to nominate an alternative administrator must
approach a registered liquidator before the meeting and get a written consent
from that person that they would be prepared to act as administrator. The
proposed alternative administrator should give to the meeting declarations
about any relationships they may have, or indemnities they have been given. The
administrator will only be replaced if the resolution to replace them is passed
by the creditors at the meeting.
Second creditors' meeting—deciding
the company's future
It is the second meeting of creditors where the major decisions in
relation to the administration are made. This meeting is usually held about
five weeks after an administrator is appointed, although this is extended to
six weeks at Christmas and Easter. An administrator must give written notice to
creditors and advertise this meeting in the same way as for the first meeting.
With the notice of meeting, an administrator must:
- provide a report to creditors about the company's business,
property, affairs and financial circumstances;
provide a statement setting out their opinion (and reasons for
their opinion) about whether it would be in the creditors' interests for the
company to execute a deed of company arrangement, for the administration to
end, or for the company to be wound up; and
- if a deed of company arrangement is proposed, provide a statement
setting out details of the proposed deed (section 439A).
At this meeting the creditors may resolve that:
the administration should end (and the company be returned to the
control of its directors)—a rare occurrence;
- the company be wound up; or
the company execute a deed of company arrangement (section 439C).
If creditors resolve that the company should be wound up, the
administrator becomes the liquidator unless creditors vote at the second
meeting to appoint a different liquidator of their choice. The liquidation
proceeds as a creditors' voluntary liquidation.
Winding up (liquidation) is discussed in further detail below.
Deeds of company arrangement
Deeds of company arrangement are sometimes referred to as 'moratorium
deeds' (in which a company is granted an extended period in which to repay its
debts in full) or 'compromise deeds' (under which creditors agree to receive
less than their full debt). If creditors vote for a proposal that the company
enter a deed of company arrangement, the company must sign the deed within 15
business days of the creditors' meeting, unless the court allows a longer time.
(If this does not happen, the company will automatically go into liquidation,
with the administrator becoming the liquidator.) The deed administrator is
usually the administrator of the company, unless the creditors appoint someone
else at the meeting (sections 444A–444B).
It is the role of the deed administrator to ensure the company (or others
who have made commitments under the deed) carries through these commitments.
The extent of the deed administrator's ongoing role is set out in the deed.
Creditors also have the right when a deed of company arrangement is proposed
and considered at the second meeting to negotiate consequences of failure to
meet such deadlines into the terms of the deed.
Distribution of funds
The order in which creditor claims are paid depends on the terms of the
deed. Sometimes the deed proposal is for creditor claims to be paid in the same
priority as in a liquidation. Other times, a different priority is proposed.
However, the deed must ensure employee entitlements are paid in priority to
other unsecured creditors unless the eligible employees agree by a majority in
both number and value to vary their priority. Treatment of employees'
entitlements is discussed in further detail below.
Potential impact on small unsecured
A deed of company arrangement binds all unsecured creditors (even if
they voted against the proposal). The deed also binds secured creditors and
owners and lessors of property used by the company who voted for the deed, and
the company and its officers and shareholders (sections 444D and 444G).
Professor Bob Baxt and Mr Jason Harris suggest that:
...the freedom and flexibility offered by the deed of company
arrangement procedure can have disastrous consequences for small unsecured
creditors. It is not hard to imagine that a deed of company arrangement may be
supported by large creditors because it unduly favours their interests at the
expense of small creditors. It must be remembered that s 444D binds all
unsecured creditors to the effect of the deed, meaning that there is the
potential for smaller creditors to be locked in to an unfair proposal
(particularly given that voting at creditors' meetings is heavily influenced by
the value of debt owed to each creditor, meaning that small unsecured creditors
may have very little opportunity to influence the process of outcomes of
However, Professor Baxt and Mr Harris contend that section 445D, whereby
the court can terminate a deed of company arrangement, 'provides an effective
protection measure to ensure that deeds do not operate outside the purposes of
The objects clause for Part 5.3A specifies that the object of the Part is to
provide for the business, property and affairs of an insolvent company to be
administered in a way that:
- maximises the chances of the company, or as much as possible of
its business, continuing in existence; or
- if it is not possible for the company or its business to continue
in existence—results in a better return for the company's creditors and members
than would result from an immediate winding up of the company (section 435A).
Conclusion of a deed of company
A deed may come to an end because the obligations under the deed have
all been fulfilled and the creditors have been paid. The deed may also provide
that the company will go into liquidation if the deed terminates due to certain
conditions being met. Another way for the deed to end is if the deed
administrator calls a meeting of creditors, and creditors vote to end the deed.
This may occur because it appears unlikely that the terms of the deed can be
fulfilled. At the same time, creditors may be asked to vote to put the company
As noted above, the deed may also be terminated if a creditor, the
company, ASIC or any other interested person applies to the court and the court
is satisfied that:
- creditors were provided false and misleading information on which
the decision to accept the deed proposal was made;
- the administrator's report left out information that was material
to the decision to accept the deed proposal;
- the deed cannot proceed without undue delay or injustice; or
- the deed is unfair or discriminatory to the interests of one or
more creditors or against the interests of creditors as a whole (section 445D).
If the court terminates the deed as a result of such an application, the
company automatically goes into liquidation.
An administrator is entitled to receive remuneration as determined:
- by agreement between the administrator and the committee of
creditors (if any); or
- by resolution of the company's creditors; or
- if there is no such agreement or resolution—by the court (subsection 449E(1)).
Generally, an administrator's fees will be paid from available assets,
before any payments are made to creditors. Apart from fees, administrators are
entitled to reimbursement for out‑of‑pocket expenses that have
arisen in carrying out the administration. This reimbursement does not usually
To be effective, a resolution of the company's creditors specifying an
administrator's remuneration must deal exclusively with remuneration of the
administrator, i.e. the resolution must not be bundled with any other
resolution (subsection 449E(1B)).
Before remuneration is determined by agreement between an administrator
and a committee of creditors, or by resolution of the company's creditors, the
administrator must prepare a report setting out:
such matters as will enable the committee of creditors (or the
company's creditors) to make an informed assessment as to whether the proposed
remuneration is reasonable;
- a summary description of the major tasks performed, or likely to
be performed, by the administrator; and
- the costs associated with each of those major tasks.
The administrator must give a copy of the report to each member of the
committee of creditors at the same time as the member is notified of the
relevant meeting of the committee, or where the remuneration is determined by
resolution of the company's creditors, at the same time as the creditor is
notified of the relevant meeting of creditors (subsections 449E(5–7)).
A court may, on the application of ASIC, the administrator, or an
officer, member or creditor of the company, review the administrator's
remuneration and confirm, increase or reduce it (section 449E).
Securities given by companies to lenders usually grant the lender the
right, when default occurs, to appoint a person to take possession and control
either of a particular asset (or group of assets), or the whole of the property
and undertaking of the company. This person is known as a receiver and is
empowered to deal with these assets in such a way as is necessary to obtain
repayment of the debt that is the subject of the security. An overview of the
role of a receiver is provided at paragraphs 3.7–3.9 above. While receivership
does not necessarily result in the winding up of the company, it is a common
outcome because the remaining assets will usually be inadequate to repay unsecured
debts. This is particularly so given the commercially traumatic circumstances
of receivership and its negative effect on the company's business operations.
The security (or charge) held by a secured creditor under which the
appointment of a receiver is made may comprise:
- a fixed charge over particular assets of the company (e.g. land,
plant and equipment); and/or
- a floating charge over assets that are used and disposed of in
the course of normal trading operations (e.g. debtors, cash and stock). 
Distribution of funds
The money from the realisation (sale) of these assets must be
distributed by the receiver as follows:
- money from the sale of fixed charge assets is paid to the secured
creditor after the costs and fees of the receiver in collecting this money have
been paid; and
- money from the sale of floating charge assets is paid out as
follows: first, the receiver's costs and fees in collecting this money; second,
certain priority claims, including employee entitlements (if the liability for
these has not been transferred to a new owner); and, third, repayment of the
secured creditor's debt.
Any funds that are left over are paid to the company or its other
external administrator if one has been appointed. (It is possible for a company
in receivership to also be in provisional liquidation, liquidation, voluntary
administration or subject to a deed of company arrangement.)
The receiver has no obligation to pay any other unsecured creditors for
outstanding pre-appointment debts. 
As noted above, the receiver is generally entitled to be paid their fees
from the money realised from the charged assets. How the fees are calculated is
usually set out in the charge document and appointment document. Unsecured
creditors have no role in setting or approving the receiver's fees. However,
ASIC, a liquidator, voluntary administrator or deed administrator may apply to
the court for the receiver's remuneration to be reviewed (section 425).
Conclusion of a receivership
A receivership usually ends when the receiver has collected and sold
enough assets to repay the secured creditor, completed all their receivership
duties and paid their receivership liabilities. Generally, the receiver resigns
or is discharged by the secured creditor. Unless another external administrator
has been appointed, full control of the company and any remaining assets goes
back to the directors. Although, as
noted above, while receivership does not necessarily result in the winding up
of the company, it is a common outcome because the remaining assets will
usually be inadequate to repay unsecured debts. 
Creditors' scheme of arrangement
A creditors' scheme of arrangement is another device that may be used by
a company in financial difficulty in an effort to prevent the company from
facing the prospect of being wound up. Under a creditors' scheme of arrangement
a company facing the prospect of insolvency may restructure its debts through a
compromise of creditors' claims similar to that which may be reached under a
deed of company arrangement.
A creditors' scheme of arrangement is initiated by application to the
court for an order that a meeting of creditors be convened and for approval of
an explanatory statement to be sent to creditors with the notice of meeting
(sections 411 and 412). The meeting (or separate meetings where creditors
interests are different in relation to the proposed arrangement) considers the
proposed scheme. A scheme binds creditors only if it is approved by a majority
of creditors in each class who between them hold at least 75 per cent of the
total debt of those creditors who are present in person or by proxy at the
meeting. Furthermore, the compromise (i.e. the scheme of arrangement) must also
be approved by the court (subsection 411(4)). The creditors' scheme of
arrangement option was never common and has now been eclipsed by the voluntary
administration procedure which is generally regarded as being subject to less
formality, delay and expense and greater flexibility of outcome.
Winding up (liquidation)
Winding up is the process leading to the liquidation of a company and
termination of its registration and existence. The purpose of liquidation of an
insolvent company is to have an independent and suitably qualified person (the
liquidator) take control of the company so that its affairs can be wound up in
an orderly and fair way for the benefit of all creditors.
Under Australian law there are three types of winding up—members'
voluntary (this can only be used by solvent companies), creditors' voluntary,
Members' voluntary winding up
As noted above, members' voluntary winding up can only be used by
solvent companies. The directors are required to make a declaration to the
effect that the company is capable of paying its debts in full within a period
of 12 months. The members of the company decide who will be appointed as
liquidator and what their remuneration will be, subject to the court's ability,
upon an application being made, to review a liquidator's remuneration.
Creditors' voluntary winding up
Creditors' voluntary winding up is the most common type of liquidation
and is used where a company is insolvent. A company may enter a creditors'
voluntary winding up where:
- as noted above, creditors vote for liquidation following a
voluntary administration or a terminated deed of company arrangement; or
- an insolvent company's shareholders resolve to liquidate the
company and appoint a liquidator.
Compulsory winding up
Compulsory winding up is effected by an order of the court. It most
commonly arises where a creditor petitions the court to have a company wound up
on grounds of insolvency, relying on failure of the company to comply with a
demand for repayment of a debt (section 459A). The liquidator is appointed by
the court and is an officer of the court.
Effect of winding up on company
officers and creditors
In any form of winding up, while a company is being wound up a person
cannot perform or exercise, and must not purport to perform or exercise, a
function or power as an officer of the company (section 471A(1)). Powers with
respect to the company and its property vest in the liquidator who may carry on
the business of the company so far as is necessary for the beneficial disposal
or winding up of the business (section 477). It is important to note that a
winding up order does not affect the rights of secured creditors to realise or
otherwise deal with the security (section 471C). However, a winding up
order can have significant effects on unsecured creditors because legal
proceedings may then only be brought against the company with the leave of the
Distribution of funds
After a liquidator has realised the assets of a company, the resulting
funds are used to pay creditors. The general rule is that all debts and claims
proved in winding up rank equally and, if the property of the company is
insufficient to meet them in full, they must be paid proportionally (section
555). However, there are exceptions to this general rule. Firstly, as the
winding up order does not affect the rights of secured creditors, the funds
available for distribution to other creditors are determined after enforcement
of their securities. Generally, the order in which remaining funds are
- costs and expenses of the liquidation, including liquidators'
- outstanding employee wages and superannuation; then
- outstanding employee leave of absence (including annual leave,
sick leave—where applicable—and long service leave); then
- employee retrenchment pay; and finally
- unsecured creditors.
Each category is paid in full before the next category is paid. If there
are insufficient funds to pay a category in full, the available funds are paid
on a pro rata basis (and the next category or categories will be paid nothing). 
As a liquidator's primary duty is to all of the company's creditors it
has generally been held that all shareholders' claims rank behind creditors'
claims and therefore shareholders are unlikely to receive any funds in an
insolvent liquidation unless they also have a claim as a creditor. However, a
decision of the High Court in Sons of Gwalia v Margaretic
determined that certain compensation claims by shareholders against a company
are not subordinated below the claims of other creditors. At the time of
writing, the Corporations Amendment (Sons of Gwalia) Bill 2010 is before
Parliament and seeks to reverse the effect of the High Court's decision.
Therefore, if the bill is passed, it would return the law to a situation where
all claims against an insolvent company from shareholders would rank equally
and be postponed until all other creditors' claims are paid.
In both types of insolvent winding up, the liquidator is generally not
required to call a creditors' meeting unless a matter requires creditor
approval. In a compulsory winding up, the only exception is if creditors pass a
resolution requiring a creditors' meeting to be called, or at least one‑tenth
in value of all the creditors request the liquidator in writing to do so.
However, it is unusual for this to happen, as those who make the request or
pass the resolution must pay the costs of calling and holding the meeting.
In a creditors' voluntary winding up, the liquidator must hold an annual
meeting of creditors or lodge a report with ASIC on the progress in the
administration. If they choose not to hold the meeting, the liquidator must
tell creditors that the report has been prepared and provide them with a copy
if asked. The report must set out:
- an account of the liquidator's acts and dealings and the conduct
of the winding up in the preceding year;
- a summary of the tasks yet to be done in the liquidation; and
- an estimate of when the liquidation is expected to be finalised.
In a creditors' voluntary winding up, the liquidator must also hold a
joint meeting of the creditors and members at the end of the winding up.
Creditors can require the liquidator to call a creditors' meeting at other
times, the same as in a court liquidation, as long as they pay the associated
In both types of winding up, a meeting may need to be convened by the
liquidator to determine their remuneration.
Committees of inspection
The liquidator may also ask creditors if they wish to appoint a
committee of inspection and, if so, who will represent the creditors on the
committee. A committee of inspection assists the liquidator, approves fees and,
in limited circumstances, approves the use of some of the liquidator's powers,
on behalf of all the creditors. Committee meetings can be arranged at short
notice, which allows the liquidator to obtain quickly the committee's views on
urgent matters. Shareholders may also be members of the committee.
Creditors in both types of insolvent liquidation can request that the
liquidator call separate meetings of shareholders and creditors to decide
whether a committee of inspection should be appointed and, if so, who will
represent the shareholders and creditors on the committee.
A committee of inspection acts by a majority in number of its members
present at a meeting, but it can only act if a majority of its members attend.
A liquidator must consider any directions given by the committee of inspection,
but is not bound to follow them. 
In addition to rights involving meetings and the distribution of funds
discussed above, the other rights of unsecured creditors include the right to:
- receive written reports about the liquidation;
inspect certain books of the liquidator;
- inform the liquidator about their knowledge of matters relevant
to the affairs of the company in liquidation; and
- complain to ASIC about the liquidator's conduct in connection
with their duties.
Creditors can also apply to the court if they are dissatisfied with an
act, omission or decision of a liquidator. This includes if a creditor seeks:
- to challenge a liquidator's decision not to admit a proof of debt
or claim, either for voting or dividend purposes; and
- a review of the liquidator's fees, in certain circumstances.
If a company fails to meet its obligations under a charge (e.g.
mortgage), a secured creditor can appoint an independent and suitably qualified
person (a receiver) to take control of and realise some or all of the charged
assets, in order to repay the secured creditor's debt. This right continues
after the company goes into liquidation. Receivership is discussed in detail
Another option available to a secured creditor is to ask the liquidator
to deal with the secured assets for them and account to them for the proceeds
and costs of collecting and selling those assets.
A secured creditor is entitled to vote at creditors' meetings for the
amount the company owes them that exceeds the amount they are likely to receive
from realisation of the charged assets. The secured creditor can participate in
any distribution of funds to unsecured creditors on a similar basis. 
A liquidator is entitled to be paid for the work carried out on the
liquidation, but only if there are assets available. The liquidator cannot be
paid until the amount of fees has been approved by one of the methods set out
in the Corporations Act.
In a compulsory winding up, the amount of fees is approved by:
- agreement with a committee of inspection (if there is one); or
- a resolution passed at a creditors' meeting; or
- the court.
A liquidator must try to get approval by each of these methods, in turn.
In a creditors' voluntary liquidation, a committee of inspection or
creditors may approve the fees.
If no fees have been approved in a compulsory winding up or a creditors'
voluntary winding up, the liquidator may draw fees to a maximum of $5000 where
they have called a meeting of creditors but not obtained approval for their
fees because the meeting did not have a quorum.
The court has the power to review the amount of fees approved in a
similar way to those of an administrator or receiver (sections 473 and 504).
If creditors are asked to approve fees either at a meeting of a
committee of inspection or in a general meeting of creditors, the liquidator
must provide creditors, at the same time as the notice of the meeting, a report
that contains sufficient information to assess whether the fees claimed are
reasonable. The report should set out:
- a description of the major tasks performed;
- the costs of completing these tasks; and
- such other information that will assist in assessing the reasonableness
of the fees claimed.
Apart from fees, the liquidator will also be entitled to reimbursement
for out-of-pocket expenses that have arisen in carrying out the liquidation.
This reimbursement does not require committee, creditor or court approval.
However, creditors have a right to know what funds were spent on these costs
and why they were spent. 
Conclusion of the winding up
A winding up effectively comes to an end when the liquidator has
realised and distributed all the company's available property and made their
report to ASIC.
As noted above, in a creditors' voluntary winding up, the liquidator
must hold a final joint meeting of the creditors and members to give an account
of how the liquidation has been conducted and how company property has been
disposed of. After the final meeting is held, the company is automatically
deregistered by ASIC three months after a notice of the holding of the meeting
In a compulsory winding up, the liquidator is not required to hold a
final meeting of creditors. After the liquidator decides that the company's
affairs are fully wound up, they may:
- seek an order for release from the court;
- seek an order for release and that ASIC deregister the company;
- if there are insufficient assets to obtain a court order for the
company's deregistration, request that ASIC deregister the company.
A company ceases to exist after it has been deregistered.
Treatment of employees' entitlements
If a voluntary administrator continues to operate the business, they
must pay out of the assets available to them ongoing wages for services
provided and other employee entitlements that arise after the date of their
appointment. These payments are treated as an expense of the voluntary
The appointment of an administrator does not automatically terminate the
employment of the company's employees. As a result, unless the administrator
adopts the employment contracts or enters into new contracts of employment with
employees, they are not personally liable for any employee entitlements that
arise during administration.
As voluntary administration is an interim form of external
administration, employee entitlements that arose prior to voluntary
administration are not usually paid during voluntary administration. How and
when these employee entitlements are paid depends on the option passed at the second
creditors' meeting (i.e. company returned to directors, a deed of company
arrangement, or liquidation).
Company is returned to directors'
If the company is returned to the directors, the directors will be
responsible for ensuring that the company pays outstanding entitlements as they
fall due. As noted above, it is only in very rare circumstances that creditors
will resolve to return the company to the control of its directors.
Deed of company arrangement
If creditors approve a deed of company arrangement, the priority in
which outstanding employee entitlements are paid depends on the terms of the
deed. A deed of company arrangement must ensure that employees' entitlements
have the same priority as in a liquidation unless the eligible employees agree
by a majority in both number and value to vary this priority. This means that
unless a variation to priority is agreed to, in a deed of company arrangement
employees have the right, if there are funds left over after payment of the
fees and expenses of the voluntary administrator and deed administrator, to be
paid their outstanding entitlements in priority to other unsecured creditors.
Priority employee entitlements are grouped into classes and paid in the
- outstanding wages and superannuation; then
- outstanding leave of absence (including annual leave and sick
leave, where applicable, and long service leave); and then
Each class is paid in full before the next class is paid. If there are
insufficient funds to pay a class in full, the available funds are paid on a
pro rata basis (and the next class or classes will be paid nothing).
If a deed proposal seeks to vary the priority for employee entitlements,
the administrator must call a meeting of eligible employees giving at least
five business days notice of the meeting. They must give to eligible employees
at the same time as the notice of meeting a statement setting out:
- their opinion about whether the proposed variation would result
in the same or better outcome for employees than if the company went into
- their reasons for this opinion; and
- any other information to help them make an informed decision about
varying the priority.
As in a voluntary administration, if a receiver continues to operate the
business, they must pay out of the company assets available to them, ongoing
employee wages for services provided and other employee entitlements that arise
after the date of appointment. These payments are treated as an expense of the
The appointment of a receiver and manager does not automatically
terminate the employment of the company's employees. As a result, unless the
receiver adopts the employment contracts or enters into new contracts of
employment with employees, they are not personally liable for any employee
entitlements that arise during the receivership.
If the company's business is sold by the receiver as a going concern, it
may be that most, if not all, of the company's employees will keep their jobs.
In this case, it is usual for the new owner to take over the company's
liability for outstanding employee entitlements.
If there are insufficient funds to pay all creditors in full, the money
from the realisation of assets must be distributed as follows:
- money from the sale of fixed charge assets is paid to the secured
creditor after the costs and fees of the receiver in collecting this money have
been paid; and
money from the sale of floating charge assets is paid out as
the receiver's costs and fees in collecting this money; then
- certain priority claims, including employee entitlements (if the
liability for these hasn't been transferred to a new owner); and then
repayment of the secured creditor's debt.
In both cases, any funds left over are paid to the company or its
external administrator, if one has been appointed.
If employee entitlements are to be paid by the receiver under a floating
charge, the payments must be made in the order outlined in paragraphs 3.88 and
Winding up (liquidation)
In most cases, the winding up of a company terminates the employment of
Employees have the right, if there are funds left over after payment of
the fees and expenses of the liquidator, to be paid their outstanding
entitlements in priority to other unsecured creditors. In a similar way to what
occurs under voluntary administration and receivership, priority employee
entitlements are grouped into classes and paid in the order outlined in
paragraphs 3.88 and 3.89.
Employees may also be entitled to make a claim against the General
Employee Entitlements and Redundancy Scheme (GEERS). GEERS is administered by
the Department of Education, Employment and Workplace Relations. It is a basic
payment scheme designed to assist employees whose employment has been
terminated due to the liquidation or bankruptcy of their employer.
If the liquidator continues to operate the business for a short period
to help in the winding up, employee entitlements accruing during this period
(on terms agreed with the liquidator) are paid out of available assets as a
cost of the winding up and before other outstanding employee entitlements.
If a committee of inspection is formed employees can nominate a
representative to be on this committee and have a say in matters that may
impact on their interests. As noted above, a committee of inspection is formed
to assist the liquidator, approve their fees and, in limited circumstances,
approve the use of some of their powers. 
Duties and responsibilities of a liquidator and the 'fit and proper'
provisions of the Corporations Act
In the winding up of a company a liquidator owes fiduciary duties to the
company, its creditors and members. In addition to these fiduciary duties,
liquidators owe other more specific duties as outlined in the Corporations Act
and in case law.
Relevant statute and case law stipulates that, as a fiduciary,
- avoid conflicts of interest—that is, a liquidator must not permit
their personal interests to conflict with those to whom a duty is owed. This
obligation applies in a number of ways. For example, a liquidator must not
profit from their position, either directly or indirectly, except by way of
remuneration for work done (section 182). Furthermore, a liquidator is not at
liberty to make contracts with the company.
- act impartially—that is, a liquidator must not favour anyone and
must not act as the agent of any group.
Duties of care and skill
As professionals, high standards are required of liquidators in the
carrying out of their tasks. For example, a liquidator should complete the
administration of a company within a reasonable time and without protracting
the liquidation where there is no reason to do so. A liquidator may be in
breach of duty if they do not seek the advice of professionals in areas in
which they are not qualified, for example, a solicitor in respect of a legal
issues or a valuer regarding the value of property.
A liquidator is required to act with a reasonable degree of care and
skill and liquidators can be liable at common law for failure to exercise due
care and skill in performing their duties. Furthermore, as an officer of the
company, a liquidator can be liable under section 180, which requires
liquidators (and other officers) to exercise their powers and discharge their
duties with the degree of care and diligence that a reasonable person would
exercise if they:
were a director or officer of a corporation in the corporation's
- occupied the office held by, and had the same responsibilities
within the corporation as, the director or officer.
Other duties owed by liquidators include:
a duty to exercise discretion—that is, while liquidators are
entitled to seek advice and appoint agents, they must not delegate the exercise
of their professional judgment and discretion;
a duty not to make improper use of inside information to gain an
advantage (section 183);
a duty to ascertain and take possession of assets;
a duty to preserve assets;
a duty to realise assets;
a duty to lodge a notice of appointment with ASIC and to register
a duty to keep records and accounts;
a duty to report and investigate;
a duty to settle list of contributories; and
a duty to ascertain liabilities.
The 'fit and proper' provisions in
the Corporations Act
As highlighted above, high standards are required of liquidators in the
carrying out of their tasks. Section 1282(2) stipulates that applicants for
registration as liquidators will satisfy minimum educational and experience
criteria and demonstrate that they are capable of properly performing the
duties and functions of a liquidator. In addition to these requirements, ASIC
must be satisfied that the applicant 'is otherwise a fit and proper person'.
Mr Jeffrey Fitzpatrick, Dr Vivienne Brand and Associate Professor
Christopher Symes suggest that:
The fit and proper person requirement aims to ensure that the
general community can have confidence that those seeking registration and those
currently holding registration as liquidators possess 'sufficient moral
integrity and rectitude of character' as to permit them to be entrusted with
significant financial responsibility and personal discretionary power. Public
trust in the reliability of liquidators is paramount to maintaining market
confidence in company operations in Australia.
Currently, 'fit and proper person' is not defined in the Corporations
Act. In Hughes and Vale Pty Ltd v State of NSW (No 2) Chief Justice
Dixon and Justices McTiernan and Webb stated that the purpose of the fit and
proper person test was 'to give the widest scope for judgment and indeed for
rejection...it would be unwise to attempt any definition of the matters which
may legitimately be inquired into; each case must depend upon its own
circumstances'. ASIC's interpretation of 'fit and proper' is consistent with
Initial application for
ASIC's Regulatory Guide 186, specifies that for the purposes of section
1282(2) an applicant for registration as a liquidator is 'otherwise a fit and
proper person' if ASIC is satisfied that an applicant has honesty, integrity,
good reputation and personal solvency—as well as, an overall capability to
perform the duties and functions of a liquidator. ASIC considers applicants in
the fiduciary nature of a liquidator's duties and function;
the fact that liquidators often have control of very large
amounts of money, other property, financial facilities and financial
obligations that belong to third parties;
the need for a liquidator's words and actions to be regarded with
complete trust by persons who deal with them;
any criminal records, disqualification order, or pending legal or
residency status; and
if the applicant is a registered trustee, their record and
reputation in that role.
Mr Fitzpatrick, Dr Brand and Associate Professor Symes suggest that:
Applicants, by their professional conduct, must continually
demonstrate that they can maintain the standards expected of their profession.
Factors such as timeliness, truthfulness and personal integrity when dealing
with clients and professional bodies demonstrate whether an individual
applicant possesses the relevant attributes to be a liquidator.
ASIC considers an applicant is not a fit and proper person to be
registered as a liquidator if:
in the last ten years, the applicant has been convicted of an
offence of which one element was dishonesty; or
the applicant has been found civilly liable for any breach of
trust, breach of fiduciary duty, dishonesty, gross negligence or recklessness
in the course of their professional duties; or
the applicant has been convicted of a serious tax offence; or
the applicant is personally insolvent; or
the applicant is disqualified from managing a corporation; or
the applicant cannot satisfy ASIC that they have full mental
ASIC also regards favourably current membership of a body—such as the
Institute of Chartered Accountants, CPA Australia or the Insolvency
Practitioners Association of Australia—that monitors the professional
performance of its members and has disciplinary functions because such bodies
usually require their members to be fit and proper persons.
In addition to the initial registration provisions, to remain registered
with ASIC as a liquidator they must continually perform adequately and properly
the duties and functions of a liquidator and remain a fit and proper person.
Section 1292(2) provides that ASIC may apply to the Companies Auditors and
Liquidators Disciplinary Board (CALDB) to cancel or suspend a liquidator's
registration if they are 'otherwise not a fit and proper person to remain
registered as a liquidator'.
To perform adequately and properly the duties and functions of a
registered liquidator means that the liquidator must comply with all the
obligations applicable to them in their capacity as a liquidator. As noted
above, these obligations include general legal requirements to exercise
reasonable care, competence and skill, and to perform all liquidator duties
with the highest standards of honesty and integrity and the statutory duties of
company officers, including discharging duties with care and diligence and good
The 'fit and proper' provisions are discussed in chapter 7.
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