“Voluntary liquidation isn’t about failure; it’s about taking control before it’s too late.”
John Morgan, Director
When a company becomes insolvent and has no realistic path to recovery, the smartest course of action may be a structured, orderly wind-up. In 2025, the voluntary liquidation process remains one of the most effective ways for Australian directors to comply with legal duties, reduce personal risk, and bring finality to financial distress.
But many business owners don’t fully understand what voluntary liquidation involves. or how it differs from other insolvency options. This guide explains the key facts directors should know before making this critical decision.
What Is Voluntary Liquidation?
Voluntary liquidation is a formal insolvency procedure where the company’s directors and shareholders agree to appoint a liquidator to wind up the business. It is used when the company is insolvent and can no longer meet its financial obligations.
Unlike court-ordered liquidation, this process is initiated internally, giving directors a greater degree of control, especially in the early stages. The voluntary liquidation process is generally faster, more cooperative, and less adversarial than external administration.
Who Can Initiate the Voluntary Liquidation Process?
The directors typically initiate the process after reviewing the company’s financial position. However, shareholder approval is also required by special resolution (at least 75%).
A licensed liquidator: such as BCR Advisory is then appointed to take control, sell assets, pay creditors where possible, and close the company in accordance with the Corporations Act 2001.
Why Would a Director Choose Voluntary Liquidation?
Directors often choose voluntary liquidation to:
- Avoid the stress and legal risks of trading while insolvent
- Fulfil their obligations under Australian corporate law
- Minimise creditor losses
- Prevent costly legal disputes from escalating
- Seek closure and finality when a turnaround is no longer viable
What Happens to Company Assets and Debts?
Once a liquidator is appointed, they:
- Take control of the company’s assets
- Investigate recent transactions and director conduct
- Sell assets to generate returns
- Distribute proceeds to creditors in a legally prescribed order
- Deregister the company upon completion
Secured creditors (such as banks) are usually paid first, followed by employee entitlements, then unsecured creditors. Directors are not personally liable for company debts unless they’ve traded while insolvent or given personal guarantees.
What Are Directors Required to Do During Liquidation?
Directors must cooperate fully with the liquidator by:
- Providing all books and records
- Completing a Report on Company Activities and Property (ROCAP)
- Assisting in asset recovery and claim validation
The voluntary liquidation process doesn’t absolve directors of responsibility, but it can protect them from legal consequences if they act appropriately.
What About Employees and the Fair Entitlements Guarantee?
Employee entitlements such as wages, leave, and redundancy are typically paid through company assets. If the business cannot afford these, employees may be eligible for payment under the Fair Entitlements Guarantee (FEG) scheme.
One of the benefits of choosing voluntary liquidation early is that it often results in better outcomes for employees and other priority creditors.
Alternatives You Should Consider First
Voluntary liquidation is final. Before taking that step, consider whether other options might still be viable:
- Small Business Restructuring (SBR)
- Voluntary Administration
- Informal Workouts with Creditors
- Safe Harbour Protections
At BCR Advisory, we work closely with directors to ensure the voluntary liquidation process is only used when it’s the most appropriate and when all other realistic paths have been explored.
Final Thoughts
The voluntary liquidation process isn’t a failure, it’s a responsible exit strategy that can reduce risk, respect employees, and deliver clarity to creditors.
In today’s environment, where ATO enforcement is tightening and cost pressures continue, acting early is more important than ever. If you’re facing insolvency, don’t wait for things to get worse. Reach out, get advice, and protect what’s left.