What’s the Difference Between Winding Up and Liquidation?

When a company closes down, there are many things that need to be taken care of, such ending all business activities and selling company stock and assets. This process is referred to as ‘winding up’ the business. As a subset of winding up, liquidation is the process where assets are sold.

Put simply, liquidation only happens for companies that are ceasing to operate. Whether these companies are solvent or insolvent, winding up a company will almost always involve liquidation. In this article, we’ll discuss what the difference between winding up and liquidation is.

Table of Contents

Winding up a company

Winding up a company means to end all business affairs in order to permanently close a company. This process involves many things, such as selling off stock, distributing the remaining assets, and paying off any outstanding debts. A solvent company which has assets worth less than $1,000 does not need to be wound up. To cease operating, it simply needs to be deregistered through ASIC. However, if a company has assets worth more than $1,000 or is insolvent, then it must be wound up.

Voluntary winding up

Directors can wind up a solvent company voluntarily if they vote to do so. To do this, directors of the company must declare that the company is solvent. After this, members must pass a vote with a 75% majority to wind up the company.

Want more?

Sign up for our newsletter and be the first to find hand-picked articles on topics that we believe are crucial to successfully scale your unique small business.

By clicking on 'Sign up to our newsletter' you are agreeing to the Lawpath Terms & Conditions

Involuntary winding up

It is illegal for a company to continue trading when it is insolvent, meaning that action must be taken as soon as possible. Further, a company can be involuntarily wound up by the Court to repay creditors if the debt is in excess of $2,000.

A creditor of the company can apply to have the indebted company wound up. To do this, the creditor must file a statutory demand and effect personal service on the registered address of the company. The creditor also needs to provide an affidavit setting out the details of debt. If the company does not dispute or repay the debt within 21 days, then the creditor can file a winding up application resulting in the company being ‘presumed insolvent. This presumption is only active for 3 months, so creditors need to act quickly.

The purpose here is for the company to be liquidated so the creditor can be repaid. If the petition is granted by the courts, an official liquidator will be appointed to assess and sell the company’s remaining assets.


Ronald runs a company named ‘R Enterprises’, which sells clothing and homewares online. However, his company is in significant debt to ‘Buy to Wear’, a larger company that has lent R Enterprises money. Buy to Wear issued R Enterprises with a statutory demand which went ignored for 21 days. Buy to wear has since commenced action in the Federal Court to wind up the company. A liquidator will be appointed to sell all assets owned by R Enterprises and then repay Buy to Wear.


In commercial terms, liquid means cash. Liquidation is the process of converting assets to cash, usually in order to pay back debts or shareholders. A liquidator is a professional (usually an accountant or lawyer) who manages this. Certified liquidators are registered with ASIC.


Winding up and liquidation both signify the end of a company. While winding up is the broader process of concluding all business affairs, liquidation is a necessary part of this process which sells off the company’s assets. If you have further questions in relation to winding up your company, it may be worth getting in touch with a commercial lawyer.

Find the perfect lawyer to help your business today!

Get a fixed-fee quote from Australia's largest lawyer marketplace.

Register for our free live webinar today!

Price of Justice: Paying the Right Price for Legal Expertise

12:00pm AEDT
Tuesday 30th April 2024

By clicking on 'Register for webinar' you are agreeing to the Lawpath Terms & Conditions

You may also like

Default interest clauses can help protect lenders' interests, but sometimes they will not be enforceable. Find out more here.
Lying on your resume to get a job is never a good idea. In fact obtaining employment through fraud can actually land you in jail.
Reference checks are integral to hiring the right people for your business. Make sure you get it right by following these simple steps.

Thank you!

Your registration is confirmed. Keep an eye on your inbox for an email with details on how to watch the webinar.