Court Liquidation

Court liquidation, sometimes called compulsory liquidation, occurs when the Federal Court or Supreme Court orders that a company be wound up. Unlike a voluntary liquidation, the directors or shareholders do not choose the liquidator. Instead, the court appoints an independent liquidator to take control of the company’s affairs.

It usually happens because a creditor, including the ATO, has taken formal recovery action after debts remain unpaid. While it is a serious step, early advice can still protect directors, reduce exposure and ensure the process is managed properly. 

Why does court liquidation happen?

A court liquidation typically follows this sequence:

• A creditor issues a Statutory Demand for payment
• The company has 21 days to pay, negotiate, or apply to set the demand aside
• If no action is taken, the company is presumed insolvent
• The creditor applies to the court for a winding-up order
• The court appoints a liquidator, often nominated by the creditor

At HM Advisory, we frequently work with directors before matters reach this stage, helping respond to demands, negotiate with creditors or explore restructuring alternatives to avoid court proceedings where possible.

What is the court liquidation process? 

Once a winding-up order is made, the process generally follows these steps:

• Court Order: The company is ordered to wind up.

• Liquidator Appointment: Directors’ powers are suspended.

• Securing and Reviewing Assets: Company assets are protected and assessed.

• Investigations: The liquidator examines company affairs, director conduct and transactions.

• Asset Realisation: Assets are sold and recoveries pursued.

• Creditor Distributions: Funds are distributed in priority order.

• Deregistration: The liquidator applies to ASIC to deregister the company.

What are some director obligations and risks? 

While not all liquidations result in personal liability, exposure can arise from insolvent trading or personal guarantees. Early, informed advice helps directors understand exposure and respond appropriately.

Directors have an obligation to:

• Cooperate fully with the liquidator
• Provide company books and records
• Answer questions honestly and promptly

What does this mean for employees and creditors? 

• Employees’ wages and entitlements are priority claims, supported by the Fair Entitlements Guarantee (FEG) if funds are insufficient. 
• Secured creditors retain rights over charged assets 
• Unsecured creditors lodge claims for any remaining distributions.

Are there alternatives before court?

Often, yes. Court liquidation is rarely the best first option. Early engagement almost always creates more control, more options and better outcomes.

Before matters escalate, HM Advisory can help explore options for corporate insolvency:

• Informal creditor negotiations 
• Voluntary Administration
• Deeds of Company Arrangement (DOCA)
• Restructuring or orderly wind-down options

Act now and get advice

We combine technical expertise with personalised guidance for directors, creditors and advisors. Our senior-led, boutique approach ensures practical, informed advice, prioritising recovery where viable.

If your company has received a Statutory Demand, court papers or ATO enforcement action, timing is critical. 

Contact us today for confidential, no-obligation advice.