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COVID-19 Recession

Advice From Businesses That Survived The Last Recession

It seems no business is immune to the devastating impacts of COVID-19, that is of course with the exception of toilet paper production companies…

For many the thought of surviving during, and thriving after a recession can seem like nothing more than an optimistic and unattainable idea. It can be immensely helpful and motivating to know that many thriving businesses today once battled in the face of an economic crisis.

Keep reading to gain knowledge and inspiration from businesses who have survived and thrived in the face of economic collapse!

Groupon

For many businesses the idea of surviving an economic crisis is a nightmare, even more so: the idea of starting a business in the midst of a crisis.

That’s exactly what Groupon did.

Launching in the middle of economic chaos, Groupon quickly grew to the multi-billion-dollar company we know today.

How did they do it? Knowing the environment and adapting.

During an economic crisis, disposable income is low and many consumers simply can’t afford the non-essential services they’ve come to love. By offering consumers deals and discounts on almost anything you can think of, Groupon was able to provide a financially viable solution for consumers. This in turn provided businesses with new interest and customers willing and able to support their products and services.

This win-win situation allowed Groupon to help consumers, businesses and themselves survive the recession.

Domino’s

Hunger: a universal problem that doesn’t go away during a recession.

When faced with a looming economic collapse, Domino’s decided to shake things up and differentiate themselves from their competitors by offering their customers a solution to the problem of hunger, in an affordable and time-efficient way.

They took a huge risk and spent millions of dollars on research to create a new signature pizza recipe and develop a marketing campaign to promote it.

This risk was met with great success and their sales and profits increased dramatically, allowing them to thrive during the recession.

Lego

Companies selling non-essential products and services arguably suffer the most during a recession.

Consumers disposable income is drastically cut and many consumers opt to forego spending their precious money on the newest and latest toys.

Understanding the failing economic climate in America at the time, Lego began expanding into the more stable economies of Asia and Europe. This decision was crucial to Lego’s success as they were able to tap into a market that was economically stable enough to support their products.

What you can learn from these businesses?

Explore new opportunities.
Understanding the social and economic climate is vital to surviving a recession. If your consumers are suffering, understand why and create new offers and services to help them. Finding a way to expand your audience to those unaffected by the crisis is also important.
Review your business model and offering, if something isn’t working: review and reinvent.

Create an alternative.
During an economic crisis, many consumers are left with no choice but to make cuts to non-essential products and services. If you can offer your consumers a more cost-efficient alternative with your services, you will increase your chances of staying relevant in their lives.

Extend a hand to those in need.
During an economic crisis almost all consumers and businesses are affected. Finding a way to help those suffering is mutually beneficial and can be the difference between surviving and collapsing during a crisis. Lowering prices, offering deals and providing new opportunities are examples of ways you can offer help during a recession.

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If you feel like your business will not make it through the impending recession, get in touch with Insolvency Experts. With over 30 years of experience, we provide low cost company liquidation. Our free, no-obligation phone consultations are available to answer all your questions, outline all options that are available to you and execute the best solution for your company moving forward.

Call now 1300 767 525 and speak directly to an expert!

Categories
COVID-19 Recession

How To Prepare Your Business For A Recession

Preparation is often the key to success. Businesses who do not prepare for a crisis often find themselves in survival mode: cutting costs, tightening profit margins and laying off employees. While this may be the only way for some businesses to survive, it often leads to even harder times when the recession eventally subsides.

Ensuring your business has an action plan in place for an economic crisis can be the difference between collapsing and surviving.

Keep reading for our tips on how to prepare your business for a recession:

Be Flexible With Consumers

Recession affects both businesses and consumers alike. While your business may be struggling to stay afloat during these difficult times, your customers may be experiencing a similar problem.

Customers may find themselves out of steady work and unable to make payments or maintain regular purchases. Allowing your customers flexibility by extending payment periods, offering custom deals or other creative solutions can in turn benefit both them and your business.

While recessions are temporary, the impacts of helping a customer in a time from need can have long-term benefits. The compassion and flexibility you show to customers in difficult times can greatly improve customer loyalty and can go on to increase your word-of-mouth referrals.

Important Note: Just as businesses are increasing flexibility to help struggling customers, so are vendors to businesses. Don’t be afraid to ask your vendors what flexibility they may be able to offer your business.

Grow Your Customer Base

It’s common knowledge, businesses need customers to survive. What many businesses don’t prepare for however, is the loss of their biggest client or contact. It is vitally important to increase the number of customers you have to support your business should crisis strike.

Leading into a recession it can be difficult to find customers willing to spend on new products and services, especially if your business is in a non-essential industry. It is important to understand your target market and the financial difficulties they may face in order to know how and where to target them.

Important Note: Think outside the box and outside your current target location. Finding a way to expand your audience to those geographically unaffected by the recession can be vital to the success of some brands.

Offer New Products & Services

Change begins at the end of your comfort zone. Broadening your offering, products and services may be the key to surviving the next recession.

When a recession hits, customers buying needs and wants changes and your business should be prepared for this. Broadening your offering can help your business expand into new markets and reach a larger audience.

Important Note: This doesn’t necessarily mean creating new products or services. You might be able to repurpose your existing offering to service a different target market.

Stress-Test Your Business

Lets face it, you can’t plan for everything. As much as we wish we could, some circumstances are unavoidable.

Ensure your business has a plan in place for different crucial scenarios to best prepare for a potential crisis.

Ask yourself these key questions:

  • What happens if we lose our biggest customer/client/supplier?
  • What if we lose a key staff member?
  • What is our breakeven number of customers/clients?
  • What could we remove from our budget with little consequence?

Important Note: Use this time to identify potential gaps and opportunities within your business model. It is best to implement crucial changes prior to a recession or economic crisis.

For any business, the thought of entering a recession is scary and unknown. While many factors remain outside your control, it is crucial to give your business the best chance at success. Utilise the above steps to strengthen your business and ensure you have a plan in place to help in difficult times.

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If you feel like your business will not make it through the current pandemic climate, get in touch with Insolvency Experts. With over 30 years of experience, we provide low cost company liquidation. Our free, no-obligation phone consultations are available to answer all your questions, outline all options that are available to you and execute the best solution for your company moving forward.

Call now 1300 767 525 and speak directly to an expert!

Categories
COVID-19

ATO Deferred Payments for Businesses Affected by Coronavirus

2020 has seen Australia suffer under the weight of devastating bushfires, disastrous floods and the social and economic collapse caused by the Coronavirus. With the economic climate looking bleak for the foreseeable future, businesses are struggling to keep afloat.

In an attempt to provide relief, the Australian Government offered a series of administrative measures to assist businesses suffering financial difficulty due to COVID-19. Among these measures comes support from the Australian Taxation Office (ATO).

Financial support options available from the ATO:

  • Deferring payments by up to 4 months
  • Quicker access to GST refunds for businesses on a quarterly reporting cycle by allowing them to opt in to monthly GST reporting
  • Allowing businesses to vary Pay As You Go (PAYG) instalment amounts to zero for the March 2020 quarter. (Businesses that vary their PAYG instalment to zero can also claim a refund for any instalments made for the September 2019 and December 2019 quarters)
  • Remitting any interest and penalties incurred on or after 23 January 2020 that have been applied to tax liabilities
  • Helping affected businesses to pay their existing and ongoing tax liabilities by allowing them to enter into low interest payment plans

These support measures will not be automatically implemented.

The ATO has advised that any businesses impacted by COVID-19 should contact them directly through their emergency support infoline on 1800 806 218 to request assistance.

For further information on support measures offered by the ATO, click here.

Categories
COVID-19

Second Government Stimulus Package

Just a few days after the Australian Government announced its first stimulus package to help small businesses stay afloat and keep people employed, a second stimulus package has been announced. This $66.1 billion stimulus package sees the addition of new measures designed to help Australians cope with the devastating economic impacts of the Coronavirus.

Keep reading to find out what additional measures are available.

Boosting Cash Flow for Employers

Small and medium businesses may be eligible to receive a payment of up to $100,000. This payment is designed to assist businesses with their cash flow to allow them to maintain operations, retain staff and help cover the cost of rent and bills.

Eligible employers will receive a payment equal to 100% of their salaries and wages withheld (previously 50% in the first stimulus scheme). The maximum payment has been increased to $50,000 (previously $25,000). The minimum payment has also been increased to $10,000 (previously $2,000)

This payment will be tax-free and will be available from 28 April, 2020. Payments will flow automatically through the Australian Taxation Office.

Temporary Financial Relief For Businesses

This relief aims to help businesses facing temporary financial distress due to the Coronavirus by creating a safety net to ensure they are able to operate once the crisis has passed. The hope of this package is to minimize the threat of actions that could unnecessarily push companies into insolvency and force the closure of the business.

This relief builds on the support from the first stimulus package which included: increasing the instant asset write off, backing business investments and supporting apprentices and trainees.

New additions to this package include:

  • Temporarily increasing the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000 for a period of 6 months
  • Temporarily increasing the time companies have to respond to statutory demands from 21 days to 6 months. This will also apply for a period of 6 months
  • Proving temporary relief to directors from any personal liability while trading insolvent.
  • Temporarily amending the Corporations Act 2001 to provide targeted relief for companies to deal the unforeseen results of Coronavirus

Job Keeper Payment

This payment scheme provides temporary relief for businesses affected by the Coronavirus. Eligible employers can apply to receive a payment of $1,500 per fortnight for each eligible employee for a period of 6 months. This payment is also available to eligible employees that have been let go and re-hired during the months surrounding the outbreak.

To be eligible, businesses with a turnover of less than $1 billion must have had their turnover reduced by more than 30 per cent compared to last financial year. Businesses with a turnover of over $1 billion will be eligible if their turnover is reduced by at least 50 per cent.

Eligible employees include those aged 16 over who were employed at 1 March 2020 and were either full-time, part-time or long-term casuals for a period of at least 12 months.

COVID Safe Harbour

This relief was introduced by the Federal Government on 22 March 2020 and aims to provide further relief for financially distressed businesses. To secure the benefit of COVID safe harbour, a company director must ensure that any debts incurred are necessary to facilitate the continuation of the business during the COVID Safe Harbor period. This includes a director taking out a loan to move business operations online and any debts incurred by continuing to pay employees during the course of the pandemic.

For further information regarding COVID-19 Safe Harbour, click here.

There is no doubt that the Coronavirus is causing devastating financial impacts on countless Australian businesses. Give your business the best possible chance at success during this difficult time by utilizing the support available from the Government stimulus packages.

For further information on the financial assistance available, click here.

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If you feel that your business will not make it through the current crisis, get in touch with Insolvency Experts. With over 30 years of experience, we provide low cost company liquidation. Our free, no-obligation phone consultations are available to answer all your questions, outline all options that are available to you and execute the best solution for your company moving forward.

Call now 1300 767 525 and speak directly to an expert!

Categories
COVID-19

Protecting Your Business During A Crisis

What Government Assistance Is Available

Claiming more than just lives, COVID-19 has seen the collapse of thousands of businesses and has left countless individuals out of work and without reliable income.

With no end in sight to the crippling economic crisis the Coronavirus has created, business owners are left wondering what they can do to keep their head above water and keep their business afloat.

Help is in reach!

The Federal Government is rolling out a series of measures to support small and medium businesses who are suffering financially due to the Coronavirus.

Keep reading to see what financial support your business may be eligible for:

Cash Flow Assistance For Small & Medium Businesses

This assistance aims to support businesses suffering the economic impacts of the Coronavirus to manage their cash flow, retain their employees and keep their business afloat.

Small and medium businesses are eligible to receive between $2,000 – $25,000 to help cover the cost of employee salaries and wages.

This measure is estimated to benefit around 690,000 businesses and approximately 7.8 million employees.

Who is eligible?

Businesses that employ workers and have an annual turnover of less than $50 million will be eligible. Eligibility will generally be based on the turnover of the previous year.

Eligible businesses that withhold tax to the ATO on their employees’ salary and wages will receive a payment equal to 50% of the amount withheld, up to a maximum payment of $25,000.

Eligible businesses that pay salary and wages will receive a minimum payment of $2,000, even if they are not required to withhold tax.

When will it be recieved?

This payment will be delivered by the Australian Taxation Office as a credit in the activity statement system from 28 April 2020 upon businesses lodging eligible upcoming activity statements.

This payment will be tax free.

Supporting Apprentices & Trainees

In an effort to retain apprentices and trainees, the Federal Government is offering a wage subsidy for eligible businesses to help cover the cost of employment for trainees.

This measure aims to support approximately 70,000 small businesses, employing around 117,000 apprentices.

Who is eligible?

This payment is available to small businesses with fewer than 20 full-time employees who employ a trainee or an apprentice. The apprentice or trainee must have been employed as of 1 March 2020.

Eligible employers can apply for a wage subsidy of 50% of their trainee or apprenice’s wage during the period of 1 January 2020 and 30 September 2020.

Payment will be reimbursed at a maximum of $21,000 per eligible apprentice or trainee.

When can I apply?

Employers can register for the subsidy from early April 2020. Claims must be lodged no later than 31 December 2020.

For further information on how to apply, including further information on eligibility, contact an Australian Apprenticeship Support Network (AASN) provider.

Increased Asset Write-Off Threshold

The instant asset threshold has been increased to $150,000 (previously $30,000) and has expanded access to include businesses with an annual turnover of under $500 million (previously $50 million).

Who is eligible?

Businesses with an annual turnover of less than $500 million are eligible.

The Increased Asset Write-Off Threshold is due to return to $1,000 for small businesses (turnover less than $10 million) from 1 July 2020.

When will it be recieved?

This measure applies from 12 March 2020 until 30 June 2020, for new or second‑hand assets first used or installed in this timeframe. A new legislation is due to be passed which will allow these changes to take effect.

This payment is generally claimed back via your business tax return.

Backing Business Investment

The Government is introducing a 15-month investment incentive to support business investment and economic growth over the short term by accelerating depreciation deductions.

This aims to support over 3.5 million businesses, employing more than 9.7 million people.

Who is eligible?

Businesses with a turnover of less than $500 million will be able to deduct 50% of the cost of an eligible asset on installation. Existing depreciation rules will apply to the balance of the asset’s cost.

What is the eligible time period?

Assets acquired from 12 March 2020 and first used or installed by 30 June 2021 will be eligible.

Job Keeper Payment

This financial aid was designed to provide temporary financial support for businesses affected by the Coronavirus. Eligible employers can receive a payment of $1,500 per fortnight for each eligible employee for a period of 6 months.

Who is eligible?

Businesses with a turnover of less than $1 billion who have had their turnover reduced by more than 30% compared to last financial year will be eligible. Businesses with a turnover of more than $1 billion must have had their turnover reduced by at least 50% to be eligible.

For employees to be eligible they must be aged over 16 and must have been employed on 1 March 2020. They must be either full-time, part-time or long-term casuals for a period of at least 12 months. This payment is also available to eligible employees that have been let go and re-hired during the pandemic.

When will it be recieved?

The first Job Keeper payment was made in the first week of May. Payment is backdated to 30 March. Subsequent payments will be completed in the months following your claim.

COVID Safe Harbour

This relief aims to provide further relief to financially distressed businesses and directors of companies facing insolvency.

Who is eligible?

To be eligible, a company director facing insolvency must be able to prove that any debts incurred are necessary to facilitate the continuation of the business during the 6 month period commencing 25 March 2020. This includes any debts incurred as a result of continuing to pay employees during the pandemic and any cost incurred to move business operations online.

For further information regarding COVID-19 Safe Harbour, click here.

These measures aim to help businesses withstand and recover from the economic impact of the Coronavirus.

To find out more about these measures and check eligibility, visit here.

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Worried about your business making it through the Covid-19 Pandemic? With over 30 years of experience, the Insolvency Experts provide low cost company liquidation. Our free, no-obligation phone consultations are available to answer all your questions, outline all options that are available to you and execute the best solution for your company moving forward.

Call now 1300 767 525 and speak directly to an expert!

Categories
Company Liquidation

What Does Liquidation Mean For Shareholders

Liquidation is the process of winding up a company and finalising its affairs. When a company is facing extreme financial difficulty, it may enter into liquidation to close the business down, sell any assets and pay off as much creditor debt as possible. There are 2 types of liquidation available for an insolvent company: court and creditors voluntary. It does not matter which process is taken, the result is the same.

Creditors Voluntary Liquidation

This type of liquidation can begin in one of two ways as outlined in the ASIC Insolvency Guide For Shareholders:

  • When creditors vote for liquidation following a voluntary administration or a terminated deed of company arrangement
  • When an insolvent company’s shareholders resolve to liquidate the company and appoint a liquidator.

Court Liquidation

In a court liquidation, a liquidator is appointed by the court with the purpose of winding up the company. This is usually following an application made by a creditor.

During all liquidations, the liquidator’s primary duty is to the company’s creditors. Any secured creditor is first, followed by unsecured creditors. Shareholders rank behind creditors and there is no guarantee that they will receive any dividend during the liquidation process. The amount a shareholder will receive depends entirely on how much money (if any) is remaining after all creditors have been paid.

In other words: shareholders are at the bottom of the chain.

Being a shareholder of a company carries a high risk as in the event of company liquidation you are last in line to be paid. In most cases, shareholders are unlikely to receive any money in a liquidation unless they also have a claim as a creditor.

What Is the Effect Of Liquidation On A Company?

Prior to liquidation, the company director has a duty to act in the best interests of the company, its creditors and its shareholders. The moment a liquidator is appointed, the directors duty is solely to its creditors. At this point, the director also forfeits any decision making power to the registered liquidators. While the director is unable to use their powers from this point, they are still required to assist the liquidator as deemed necessary. This is most commonly in the form of providing the company’s books, records and reports about the company’s affairs.

It is the liquidators role to realise, collect and liquify any company assets for the purpose of distributing the sale proceeds to proven creditors. The powers of a liquidator are further explained in Section 477 of the Corporations Act and include;

  • Collect and protect assets of a company;
  • Trade the business of a company;
  • Sell the assets of a company;
  • Investigate the financial affairs and any transactions of the company;
  • Undertake any legal recoveries or claims.

During a court liquidation, the liquidator is not required to report the process or outcome of the liquidation to the shareholders. Shareholders are still able to inspect the books and records kept by the liquidator upon request.

The process of liquidation is usually complete within 4-6 months. This means that after this short period of time the company will cease trading, all debts will be finalised and the business will be formally closed.

After liquidation, the company director is free of any company debts assuming they did not have any personal guarantees. Any outstanding debts of the company will be written off or dealt with during the liquidation process. Legal action is also halted as soon as the liquidation process commences. Section 471B of the Corporations Act prevents any person from commencing or continuing with legal actions against the company without first seeking a Court order to do so.

Personal Guarantees

In Australia, a company is its own legal entity and is completely separate from its owners. It is for this reason that individuals are rarely held personally liable for the debts of a company. A personal guarantee is a promise by which the guarantor agrees to repay the debt in the event the company is unable to. While it is far more common for directors to agree to a personal guarantee, a shareholder may also provide a personal guarantee. If a shareholder does provide a personal guarantee, they may be personally responsible for paying back any debts of the company if it is liquidated.

How Is Cash Raised During A Liquidation?

As previously mentioned, when a liquidator is appointed they gain control over all business affairs. It is the liquidators role to realise, collect and liquify any company assets to distribute the proceeds to proven creditors.

In certain cases the company may continue to trade whilst in liquidation, however this is at the discretion of the liquidator. While the role of a liquidator is ultimately to bring a business and its affairs to an end or ‘wind up a company’, they do have the power under the Corporations Act to trade a company while in liquidation if it is commercially beneficial and practical to do so. A liquidator may continue to trade a business in order to sell the assets to pay its debts or if it is in the best interest of the creditors to do so. A liquidator may also continue trading a company for a short period of time in order to complete and sell an otherwise profitable business.

Can You Write Off Your Shareholding As A Capital Loss?

As a shareholder of an insolvent company, ASIC says you can realise a capital loss if:

  • A liquidator or administrator makes a written declaration that they have reasonable grounds to believe there is no likelihood of shareholders receiving any distribution in the course of the company being wound up; or
  • No declaration is made, then the deregistration of a company at the end of the liquidation also allows shareholders to realise a capital loss.

Are You The Shareholder Of A Company Facing Liquidation?

Receive free, professional advice from the Insolvency Experts. With over 30 years of experience, our licensed insolvency practitioners are here to answer any questions you may have and outline all options available to you.

Call now 1300 767 525 and speak directly to an expert!

 


Explore these related articles for more information:

Who is liable when a company goes into liquidation

5 Reasons for Failure in Australian Small Business

Categories
Company Liquidation Director Liabilities

Can A Director Resign When A Company Is In Liquidation

The short answer: No! And even if you resigned in the period leading up to the liquidation, you will still be held responsible for your conduct whilst you were the director.

Who Is A Director?

While this may seem like a simple question, the answer may surprise you.

A director is not just a person formally appointed to that role. The Corporations Act 2001 states that a person may be a director if they act in that role, even if they are not formally appointed. A person may also be deemed a director if the appointed directors of the company or key staff act in accordance with their wishes or instructions.

If you were not formally appointed as a director you may be unable to technically resign from the role. This means that you may still be held personally liable as a deemed director even if you were never formally appointed.

Should A Director Resign During Liquidation?

While it may seem tempting to resign from your position as director, there is often little benefit.

When a company enters liquidation the director loses all decision making powers and is essentially relieved of their director responsibilities. At the point a liquidator is appointed, they immediately gain control of all company affairs and assets. The powers of a liquidator are further explained in Section 477 of the Corporations Act and include;

  • Collect and protect assets of a company;
  • Trade the business of a company;
  • Sell the assets of a company;
  • Investigate the financial affairs and any transactions of the company;
  • Undertake any legal recoveries or claims.

Even if a director was to resign during the liquidation process, which they cannot do, they would still be required to assist the liquidator as deemed necessary. This includes supplying supporting documents such as the company’s books and records.

Further to this, simply resigning as a director will not exempt you from being included in the company investigation. As part of the liquidation process, the appointed liquidator must undertake a detailed investigation into the company’s financial dealings including reasons for failure and the conduct of the directors and any shadow directors. Your actions during your time as director will be investigated and reviewed to identify whether any illegal activity or breach of director duties took place.

The law requires directors to maintain proper books and records and also:

  • Take active steps to question and confirm the financial position and solvency of the company;
  • Regularly review the company’s financial situation;
  • Seek advice from qualified professions is a problem is suspected;
  • Act in a timely manner to address any solvency issues.

If a director is found to have acted illegally such as insolvent trading or breached their director duties during their period with the company: they may be personally liable for the debts of the company, be imprisoned for up to 10 years, or be fined. Directors may also be disqualified from managing future corporations under Section 206B of the Corporations Act if:

  • The person is convicted on indictment of an offence that;
    • Concerns the making or participation in making decisions that affect the whole or a substantial part of the business of a corporation or its financial standing
  • Is convicted of an offence that:
    • Is a contravention of the Corporations act and is punishable by imprisonment for a period greater than 12 months; or
    • Involves dishonesty and is punishable by imprisonment for at least 3 months
  • The person is an undischarged bankrupt
  • The person has executed a Deed of Arrangement under Part X of the Bankruptcy Act which terms have not been fully complied with.

Resigning during liquidation will not help the director as it is their actions prior to the liquidation that are investigated.

What Are The Effects Of Liquidation On A Director?

While being the director of a company facing liquidation is not an enviable position, it may not be as bad as you fear. Many directors fear that they will be personally liable for the debts of the company and may lose their home and other personal assets. For this reason, many directors will either avoid liquidation or are tempted to resign during the process.

While there is the possibility of personal liability and loss of personal assets, as long as the director has acted lawfully and fulfilled their duties, this will be unlikely. A director may also be personally liable if they have signed a personal guarantee to a creditor. Personal guarantees allow a creditor to place a direct claim on the guarantor and potentially, their personal assets. If a director fully understands their duties and performs them in accordance with the Corporations Act and has not agreed to any personal guarantees, they should have little to worry about in relation to personal liability.

With personal liability off the table, the next worrisome thought for directors is that they will be unable to hold this title again in a new company. This is incorrect. While there are rules in place regarding the ability to be a director in the future, it is possible to be a company director again immediately. For more information on these rules and further information regarding directing a company after liquidation, click here.

Explore these related articles for more information:

Can you be a Director after Company Liquidation

What Happens To A Director When A Company Goes Into Liquidation

Categories
Company Liquidation Director Liabilities

What Happens To A Director When A Company Goes Into Liquidation

Being the director of a company experiencing financial difficulties can be scary and unknown. All too often, company directors continue to amass company debt as they view entering liquidation as a personal failure and are terrified of being personally liable for any debts incurred by the company. While in most cases the director is not financially liable for these debts, there is the potential for personal assets to be seized.

As the director you have a duty to act in the best interests of your company, its creditors and its shareholders. The extent to which liquidation affects a company’s director will depend on their practices prior to the liquidation. If upon investigation you have acted wrongfully or unlawfully, you may be personally liable for any debts incurred on the company’s behalf. While there is the possibility of personal liability and loss of personal assets, being the director of a company in liquidation may not be as bad as you fear.

As a director of a company facing financial difficulties, it is essential to understand the potential consequences of entering into liquidation.

Loss Of Director Powers

Once a registered liquidator has been appointed and the directors and members resolutions have been passed, the company has officially entered liquidation. At this point, the decision-making powers of a director are immediately suspended. From this point forward, the appointed liquidator will be directly responsible for all affairs of the company including all the company’s assets as laid out in Section 477 of the Corporations Act.

Despite losing their powers, directors may still be personally liable for any debts incurred by the company if they breached their directors duty, entered a personal guarantee loan or operated unlawfully. Directors may also be required to assist the liquidator as deemed necessary throughout the liquidation process by supplying them with supporting documents, like books and records. Additionally, the director must have a verifiable explanation for every financial move the company has made up to and including the point of liquidation.

Personal Guarantee To Secured Creditors

While in most cases a directors personal assets are protected during the liquidation process, any loans taken with a personal guarantee may result in personal liability. A personal guarantee to creditors is a loan taken out where a person (usually the company director) agrees to take personal liability for the business debts in the event the company can not pay. If the company is unable to repay this loan, the creditor has a direct claim on the guarantor and potentially their personal assets. Even if your company is liquidated you may still be personally liable for its debts. The best way to prevent this from happening is never to sign a loan with a personal guarantee, however tempting it may be.

This is the only type of creditor that may claim to collect their debts once a company has entered liquidation. As a result, liquidation may actually prevent a company and its director from further losses.

Another form of personal liability for directors is if a home equity loan was taken out for the business against the value of your home. These secured loans on your home means that you may still be personally liable to repay the company debts after it is liquidated.

Don’t leave your personal assets up to chance! Contact the Insolvency Experts today to ensure the protection of your personal assets.

Insolvent Trading

If your company is insolvent, your legal duty is to your creditors.

Insolvent trading is the practice of continuing trading as usual and incurring further debt once the company is insolvent. That is, where the company cannot pay its debts as and when they fall due for payment. Insolvent trading is illegal and can occur both intentionally and unintentionally. While internationally engaging in insolvent trading may seem more severe, by unintentionally trading insolvent the director is committing a serious miscarriage of their duties and can still be financially liable. Unfortunately, even if no insolvent trading has occurred, if a director has not kept financial books and records for the 7 year period required, they will have no defence if they are hit with a claim of insolvent trading. Keeping books and records up to date is mandatory. Additionally, directors must take an active role in reviewing a company’s financial records. They must question any inconsistencies and seek professional help if they are unsure of how to proceed.

Breaches Of Directors Duties

As mentioned previously, as the director of a company you have a duty to act in the best interests of your business, its creditors and its shareholders. Failure to do so can result in being personally liable for any debts incurred on behalf of the company.

As a director you are expected to regularly review the finances of the company and take steps to resolve any issues that may arise in a timely manner. Breaches of director duties can involve: insolvent and fraudulent trading, and many other breaches of the Corporations Act.

Insolvent Trading
This occurs when a director continues to trade a company when they know, or should have known that there was no reasonable prospect of the company repaying its debts as and when they fell due for payment. If a director is suspected of insolvent trading they must be able to prove that they took every step possible to minimise loss to the creditors. If the Court determines that insolvent trading has occurred, they can order the director to be personally liable for the company debts with no financial limit. If the claim for losses is high enough, the director may have to file for personal bankruptcy.

Fraudulent Trading
This form of trading involves a director having operated a business with the intention to defraud creditors or any other fraudulent purpose. Examples of fraudulent trading include: entering contracts where you do not have the sufficient funds to complete the undertaking, giving inaccurate information with the intent to deceive and taking deposits for orders you know you are unable to fill. If the Court proves that fraudulent trading has occurred the director may be
personally liable to the debts of the company. Directors may also be imprisoned for up to 10 years, receive a fine, or both.

Misfeasance
This is where a breach of legal fiduciary duties of a director have taken place. Examples of this include: misappropriation of company funds and money improperly drawn from a company. If  this is the case, the Court can order directors to repay and restore these funds or contribute without financial limit to the company debt.

Liquidation may not be the only way out for your company. Voluntary administration is essentially a last-ditch effort to save a company from liquidation by offering creditors a higher return than what they would get if the company was liquidated. Find out if your company may be recoverable through voluntary administration today with help from the Insolvency Experts.

When met with extreme financial difficulty, it is important to understand exactly what options are available to you and what you may be personally liable for. All of these outcomes are possible for all types of company liquidation including creditors voluntary liquidation, voluntary administration and corporate insolvencies. If a director fully understands their duties and performs them in accordance with the Corporations Act, they should have little to worry about in relation to personal liability.

Contact the Insolvency Experts today to receive free expert advice and help you make an informed decision of what is best for you and your company moving forward.

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Categories
Company Liquidation

Can A Company Trade Whilst In Liquidation?

Are your business troubles keeping you up at night?

For many, deciding what to do with their failing business is one of the biggest decisions they will ever have to make. Is there a way to improve sales? Can you cut costs further? Should you sell your house and invest more into your business?

Battling to keep a failing business afloat can take a toll on your mental and physical health as well as the well-being of your family.

Unfortunately for some struggling businesses, liquidation is the only option.

What is liquidation?

Liquidation is the process by which a business and it’s affairs are legally brought to an end. Company Liquidation can be a means to mitigate their financial situation and limit any personal liability of the company directors. Any and all assets of the business are liquified and distributed to secured creditors in a legally fair and correct way. Unsecured creditors may be repaid if there are funds remaining after all other debts have been paid.

Liquidation is different from voluntary administration as it is the process of selling all assets before dissolving a company as opposed to ensuring company debts are paid in full to escape insolvency.

Whether or not liquidation is the best option for your business is a difficult decision and is best left to the professionals.

Receive free, expert liquidation advice available 24/7 by calling The Insolvency Experts.

Our experts will assess your individual situation and determine if liquidation is the best way forward for your business. If you decide to liquidate your business, you will need to appoint a liquidator to take control of the affairs of the company, including all assets. The powers of a liquidator are further explained in Section 477 of the Corporations Act and include;

  • collect and protect assets of a company;
  • trade the business of a company;
  • sell the assets of a company;
  • investigate the financial affairs and any transactions of the company;
  • undertake any legal recoveries or claims.

Can a company trade while in liquidation?

Once a company goes into liquidation, they do not necessarily have to cease trading. A company may continue to trade whilst in liquidation, however this decision is at the discretion of the liquidator. A liquidator has the power and authority to trade a company whilst in liquidation in order to sell the assets to pay its debts or if it is in the best interest of the creditors to do so. A liquidator may also continue trading a company for a short period of time in order to complete and sell an otherwise profitable business.

While the role of a liquidator is ultimately to bring a business and its affairs to an end or ‘wind up a company’, they do have the power under the Corporations Act to trade a company while in liquidation if it is commercially beneficial and practical to do so.

What is the liquidation process?

Liquidation can either be voluntary or involuntary, depending on who instigated the liquidation. When a company is insolvent, the directors and shareholders may instigate a creditors voluntary liquidation.

The first stage of any liquidation is appointing a liquidator. A liquidator will gain control over all business affairs so it is essential to select a reputable, reliable and trustworthy liquidator. The role of a liquidator is ultimately to realise, collect and liquify the company’s assets for the purpose of distributing the sale proceeds to proven creditors. A good liquidator will be willing to explain the entire liquidation process to business owners and directors, outlining every stage of the process and the effects it will have. They will be there to answer any questions you may have and provide clarification should you require it.

Confidential advice available 24 hours – Call 1300 767 525

Once a liquidator is appointed, the next step is passing a director’s resolution. This stage is often the most taxing for business owners and directors as it officially expresses the intention to liquidate. Once the directors resolution has been passed, a meeting is called where shareholders can complete the final step in starting a liquidation.

After a liquidator has been appointed and the directors resolution has been passed, the liquidation process is outside of the business’ hands entirely. At this stage all powers of the director will be suspended.

Apart from the control, collection and sale of the company assets and affairs, the liquidator must also undertake a detailed investigation into the company’s financial dealings including reasons for failure and the conduct of the directors. The appointed liquidator will identify any illegal or voidable transactions and identify whether the directors have acted appropriately and legally.
All findings of a liquidators investigation are turned over to the ASIC and the company’s creditors. A liquidator will facilitate the sale of company assets and the distribution of any surplus funds.

All creditors will be notified of the liquidation and will now contact your liquidator directly. If a creditor does call you, simply refer them to your liquidator. Your liquidator will take care of everything to do with your company so you are able to focus on other aspects of your life. Occasionally, the director may be required to assist the liquidator as reasonably necessary.

What is the effect of liquidation on a company?

After the liquidator has completed all above steps, the process has officially finished and the company is now liquidated. Majority of liquidations are effectively completed within 4-6 months, allowing you to move on with your life as quickly as possible. While the official process of liquidation takes a few months, the burden on the director and company are removed as soon as the liquidator is appointed.

Business liquidation allows the past to be left behind and a new page to be started. Harassing letters from creditors, the ATO and debt collected will cease and will be dealt with by your liquidator until the process is complete.

Once a business has been liquidated, any outstanding debts incurred by the company will be written off or dealt with during the liquidation process. This is able to occur as the company is viewed as a separate legal entity. The director is not the company and therefore the director is not personally liable to repay the debts of the company. Unless a creditor has a personal guarantee, business liquidation will free you of the debts of your company.

Legal action is also halted as soon as the liquidation process commences. Section 471B of the Corporations Act prevents any person from commencing or continuing with legal actions against the company without first seeking a Court order to do so.

The process of liquidation may also allow your employees to be paid their entitlements if you are unable to. The Fair Entitlements Guarantee Scheme is able to respond to employee claims and will pay most of their unpaid entitlements including wages, annual leave, payment in lieu of notice and redundancy if they lost their jobs due to insolvency.

In reality, making the decision to liquidate your business is the most difficult part of the process. Once you have made this decision and appointed a liquidator, the process is no longer in the hands of the company. Our liquidation experts are often told “If I had known this sooner, I wouldn’t have lost everything by putting it into a failing company. I should have done this a long time ago”. If you are unsure of the best decision for your company moving forward, contact our liquidation experts now for free expert advice.

With over 30 years of experience, Insolvency Experts are your low cost liquidation experts. Our free, no-obligation phone consultations are available to answer all your questions, outline all options that are available to you and execute the best solution for your company moving forward.

Call now 1300 767 525 and speak directly to an expert!

Categories
Company Liquidation

How to Start A Liquidation

How to Start A Liquidation | The Insolvency Experts Australia

No one wants to find themselves or their business at the point of insolvency, but it’s a reality for many individuals every year. Even a once successful business can find themselves on the brink of insolvency; at that point, business owners have little other choice but to engage in a liquidation.

The first step in starting a liquidation is simply to contact a liquidation company or insolvency professional. These are industry professionals who are registered and licensed with the Australia Securities and Investments Commission who know the ins and outs of insolvency, and can help business owners weigh the pros and cons of liquidation while formulating a long term plan for success following the liquidation.

Why Liquidate At All?

Many individuals are resistant to the concept of liquidation, as it translates to them as a personal failure. In truth, liquidation can be a means to mitigate a company’s dire financial situation and also limit any personal liability of the directors.

What’s more, beginning the liquidation process diverts the attention of creditors or legal proceeding to the liquidator’s office rather than to the director.
Still, liquidation is far from being the only option for a struggling business, which is precisely why contacting an insolvency professional is the first step when liquidation seems imminent. If the liquidation professional determines that there’s simply no other option, it’s time to begin the process of liquidations.

Start By Selecting A Liquidator

Once a company realizes that simply reframing their business plan or shifting focus won’t be enough to save them, they should select a liquidator.
A good liquidator will be willing to talk business owners through the process of liquidation, lingering on any detail or question for as long as necessary. In reality, the most difficult part of starting a liquidation is simply making the decision to pursue one; from there, the steps that follow are quite simple.

Pass A Resolution

The second step in completing a liquidation in Australia is passing a director’s resolution which states that a company is, indeed, insolvent. For many directors, this is a personally emotionally taxing step in the process, as it officially expresses liquidation intentions.

After the director’s resolution has been issued, it’s time to include the shareholders in the process; a meeting must be called where they can complete the final step in the early processes of starting a liquidation.

Appointing A Liquidator

When shareholders convene, they’ll need to pass a resolution of their own. This one concerns appointing a liquidator, and this resolution will have to be passed with a 75% majority.

The ability to appoint their own liquidator is one of the biggest reasons that companies choose voluntary liquidation, and one of the reasons that an insolvency professional might advise them to do so. Alternatively, the court would appoint a liquidator instead.

Once these three items have been checked off of the list, the key players in a company can immediately take a step back—things are now officially out of their hands.

What Happens Next?

After the three above mentioned steps have been completed, the process of liquidation is outside of the business’ hands entirely. The appointed liquidator takes control, and completes a thorough investigation into the company’s financial dealings. The liquidator also deals with all creditors – and the director no longer needs to field endless calls from people demanding payment.

Of course, the director is expected to assist the liquidator as is reasonably needed. So long as a director has kept adequate records of the business’ financial dealings, they’ll have nothing to worry about.

While the liquidator must turn their findings over to the ASIC and report to the company’s creditors, they will also help to facilitate the sale of company assets and the distribution of surplus funds, if any exist.

After the liquidator has completed each of their roles, the process has finished officially, but the reality is that the difficulty with liquidation has been over for quite a while by that point as far as the business owners are concerned. This is because, as mentioned previously, the burdens of the company are completely relinquished once a liquidator is appointed, so directors can get on with forging a new path.

The Role of An Insolvency Team

It goes without saying that a person wondering whether it’s time to liquidate their business won’t be able to make an informed decision if they don’t receive quality advice right from the outset.

An insolvency team ensures that business owners are acting in their best interest by having all the information they require to make an informed decision.
The long and the short of it is that starting a liquidation begins with forging a meaningful connection with a team like the one at The Insolvency Experts. We’re here to offer guidance and assistance every step of the way—simply contact us and receive a helping hand in the voluntary liquidation process.

If you need help, call The Insolvency Experts on 1300 767 525