Categories
Bankruptcy

Debt Agreement Co. referred for ‘’Dodgy” ATM advert

A Qld Debt Agreement company has been referred to the Australian Financial Security Authority (AFSA) for allegedly misleading vulnerable persons through advertisements dispensed at ATM machines.

The “dodgy” advert pushes Debt Agreements as an alternative to bankruptcy and promises “no dodgy quick fixes, costly loans, no obligations, a solution and no more stress”.

A Debt Agreement is a formal alternative to bankruptcy however there is an argument that most debtors rarely end up better off by entering into one.

Not only do debtors have to pay the often exorbitant fees of a Debt Administrator, but they are also required by the Agreement to repay most of the outstanding debt, usually over a 3 – 5 year time frame, which is longer than the vast majority of bankruptcies.

And despite all this effort, the debtors’ credit rating is ruined.

The Consumer Action Law Centre referred the case to AFSA, because of its concerns that the advertisement targets people at their most vulnerable time. It was also concerned that the advertisement was misleading those in need by making promises that are simply not true. So let’s take a look at what the fuss is about.

Debt Agreement – Are they a Real Alternative to Bankruptcy?

A Debt Agreement is a formal alternative to bankruptcy that operates under Part IX of the Bankruptcy Act.

While a Debt Agreement allows a debtor to compromise and discharge outstanding debts, they do;

  1. Negatively impact a persons’ credit rating for at least 7 years.
  2. Result in a life time listing on the National Personal Insolvency Index
  3. Make obtaining finance and rental accommodation far more difficult
  4. Impose a range of onerous obligations on the debtor.
  5. Cause stress and hardship on many debtors
  6. Operate over a period of many years and often much longer than bankruptcy
  7. Require a debtor to repay the bulk of the outstanding debt
  8. Cost substantially more than the process of bankruptcy

Entering into a Debt Agreement is an act of Bankruptcy and as such, if a debtor fails to complete the agreement, creditors can move towards bankruptcy immediately.

Under a Debt agreement, the debtor is required to pay a substantial proportion of their income towards their outstanding debts. Such payments are not required in bankruptcy unless certain income levels have been exceeded.

This means, bankruptcy is often a better alternative for people with a limited income as all their earnings can be directed towards food, rent and other day to day living expenses rather than toward the repayment of old debt.

Debt Agreement or Bankruptcy – What Are the advantages?

Considering the above, one might ask why would anyone enter into a Debt Agreement.

Perception! People believe Bankruptcy to be something that it’s not.

So let’s examine some of the things people believe about bankruptcy that are not true.

  • People believe that bankruptcy places limits on the amount of income you can earn – but this is not true. There are no limits and people are encouraged to earn as much as possible.
  • They believe that bankruptcy will result in the loss of their jobs – but again this is not true. There are very few occupations that are affected by bankruptcy.
  • They believe everyone will know they are bankrupt – but bankruptcy is not advertised. Employers won’t know about it.
  • They believe they will not be able to travel overseas – but this is possible with permission of the bankruptcy trustee
  • They believe they will lose their clothing, their possessions, tv, furniture, car etc – but again, this is not true – a person who is bankrupt can normally keep all these assets with only certain limits on cars.

In bankruptcy as in a Debt Agreement, credit rating is negatively impacted. Equity in major assets such as a house will be taken or accessed for the benefit of creditors.

So what is the benefit of a Debt Agreement? According to the promoters the benefits include;

  1. Formal bankruptcy is avoided
  2. All creditors are bound by the Formal Agreement so long as it is being complied with.
  3. One monthly payment is required to deal with all creditor claims.
  4. The debtor no longer has to deal with irate creditors
  5. Interest accumulation on debts generally stops
  6. A release from any on-going obligations to the creditors occurs automatically if the agreement is fulfilled.

As in bankruptcy, there is generally no effect on employment.

Debt Agreement Eligibility criteria

If after considering the above, a person still wishes to pursue a Debt Agreement, they must qualify for the process by having;

  • Unsecured Debts of less than $106,561.00; or
  • Assets less than $106,561.00; or
  • Income in the next 12 months less than $79,920.75 (after tax).

If a debtors’ position exceeds the above, they may be eligible Personal Insolvency Agreement. As with a Debt Agreement, a PIA is also a formal alternative to personal Bankruptcy but for people with greater levels of income, assets and debt.

A Final Note

This story highlights a sad fact – people are vulnerable when they are experiencing financial difficulties and while there are many organisations wishing to do good, such as the Consumer Action Law Centre and The Insolvency Experts, there are many more that look to profit from your weakness.

No matter how difficult the financial situation, you have options that are available to you, but it is up to you to seek the truth and proper advice and assistance. When you are in trouble, the most important thing you can do is gather information, be critical of that information and consider all the alternatives in order to determine which course of action will be best for you.

Source: News.com.au


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Insolvency

ATO “Cowboy” Auditor Ruins Lives with Baseless Claims

Innocent until proved guilty – Right? Wrong! There is no presumption of innocence according to the Australian Taxation Office who is fighting a parliamentary committee to retain its powers.

Currently, if the ATO makes an accusation of tax evasion, a taxpayer is deemed guilty until they prove their innocence.

If the ATO raises an assessment, even out of thin air and without being able to support the claim, the obligation is upon the taxpayer to prove there is no debt. In the meantime, the tax office has full power to recover the debt.

A federal inquiry into tax disputes found numerous stories of ATO auditors bullying taxpayers while taking an aggressive revenue-bias approach. The enquiry heard this has lead to businesses and lives being ruined, including mental breakdown and suicide more helpful hints.

The committee recommend the onus of proving guilt should be upon the ATO rather than the taxpayer proving innocence, and that any findings or allegations must require a substantial level of evidence. The committee has also recommended a new independent second commissioner be appointed with the ATO to hear taxpayer appeals.

Tax Debts and Company Insolvency

Small businesses account for more than 60% of the total debt owing to the ATO.

The inquiry found that because of this, and the fact that small business generally does not have sufficient financial resources to argue against the ATO, many taxpayers simply choose to settle claims despite objecting to the assessment and having grounds for appeal.

In the alternative, it also found many companies forced into liquidation and company insolvency.

The ATO is seen to be very threatening and have a number of aggressive measures that they use against taxpayers.

One tactic to recover debt has been for the ATO to raise a tax assessment, and then immediately issue a garnishee before a taxpayer has the right to lodge an objection to the assessment.

A garnishee is a tool that directs a bank to withdraw the taxpayers’ funds from a bank account and pay them to the ATO. Clearly, this can have devastating effects on a business and lead to company insolvency.

Director Penalty Notice

The tax department can also hold a director of personally liable for company debts – specifically unpaid PAYG and superannuation. This is called the Director Penalty Notice regime.

Normally, a director is not responsible for company debts unless a personal guarantee has been granted however, where BAS lodgements are made more than 3 months past the due date for lodgement, a director becomes immediately personally liable for company tax.

If lodgements have been made on time and a debt exists, the tax office can hold a director personally liable by issuing a Director Penalty Notice. If a director fails to comply with the notice, personal liability for company debts follows.

In either case, the ATO does pursue individuals into bankruptcy for debts under the Director Penalty Regime.

Current ATO recovery attitude

Historically, the ATO has been responsible for the most forced liquidation and company insolvency cases in Australia.

At present, many of our clients are complaining of a new and aggressive push by the ATO in its collection activities.

During the GFC, the ATO assisted taxpayers by entering into payment arrangements over 2 years or more without any real documentation in support. Subsequently, in from about 2010 onwards, the ATO would allow instalment agreements over a 12 month period, and sometimes a little longer, if the taxpayer could demonstrate by way of documentation, that the business could sustain such an arrangement as well as its current obligations.

In the last week however, we had a client with a relatively small tax debt of $80,000 who willingly approached the ATO regarding an arrangement.

The client proposed an arrangement that would see the total debt paid over a 12 month period and could demonstrate the business would be able to satisfy such an agreement as well as maintain its current obligations.

However the tax department refused and offered only a 3 month period in which to pay the total debt.

No matter what the client proposed, the ATO officer refused saying instead that because there were many outstanding tax debts owing, this was now the ATO’s official position.

ATO Power of Compromise

While we unsure as to whether the above is the official position of the ATO or just the hardened attitude of one particular government employee, we thought we would highlight the fact that the ATO does have the authority, where it is reasonable to do so, to:

  • Allow a taxpayer to pay a debt by instalment where they face genuine difficulty
  • Waive penalties
  • Release a taxpayer from payment of certain taxes if payment of the full amount would cause serious hardship
  • Allow a partial or full remission of the general interest charge
  • Fully compromise a tax debt of a company or an individual.

There are a number of minimum requirements for reaching a compromise with the ATO including:

  • All elements of the proposal must be in writing and supported by appropriate material
  • The compromise must offer all the taxpayers net assets (with limited exceptions)
  • The commission expects to be treated the same as other creditors.
  • The commissioner must know the precise amount of all current tax debts that are sought to be compromised.
  • All lodgements must be up to date

A Final Note

There are rules and requirements in relation to compromising debts with the ATO and The Insolvency Experts can assist you in your dealings with the ATO.

No matter how difficult the financial situation, company insolvency is not the only option. Liquidation is but one of a range of alternatives that director must consider for their own benefit before they make any formal appointment.

If you are facing financial difficulties, take control, and learn about the alternatives available to you. As always, call The Insolvency Experts for help.

Source: ATO Powers to fight tax evasion – SMH ATO inquiry – SMH


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Insolvency

How Directors can protect themselves from coming Recession

Business confidence has fallen to its lowest level in 18 months. The resources sector is in decline with investment and export prices plunging. Unemployment is at its highest since 2003.

To stimulate the economy, the RBA may cut rates to 2% in May and there are predictions of further cuts to 1.75% or below. The local dollar could drop to 60 US cents or even lower.

Some business leaders are suggesting caution on further rate cuts because the economy has already been stimulated by the weaker dollar and low oil prices.

While rate cuts could see further price rises in the hot property markets of Sydney & Melbourne, the RBA is issuing warnings of significant falls in house prices if speculative demand continues on the back of cheap credit. The same cheap money is also driving up the local share market.

The concern is that with the resources sector already in trouble, if property prices fall, wealth reduces, which is likely to lead to a general worsening of economic conditions with homeowners cutting spending across all sectors of the economy.

When spending falls, businesses fail

When people are concerned about the economy, they save money in anticipation for a rainy day. This has occurred since the GFC in 2008 with the RBA reporting that most Australian households currently have low levels of financial stress. Corporate insolvency and personal bankruptcy numbers are down and people have only recently started to relax their spending a little.

But what if things are about to change? Is it all turning negative?

Australia has not had a recession in over 20 years. Interest rates are low. The oil price is down. The cost of consumables and groceries is low. Surely if you have a business or employment, there has never been a better time than now?

So why is unemployment rising? Is it the mining and resource sectors only? Do people perceive risk in the economy? Will this fear become a self fulfilling prophecy?

There is no doubt that if the property market falls and people see their wealth reduce, that this will have an effect on consumption. The fears in the market, whether real or imagined will also have an effect on spending that will have flow on effects to all businesses. And this could see the start of an ever increasing downward spiral.

As spending dries up, business lay off staff and this adds to unemployment. This in turns adds to the general unease in the economy and people spend less. As this happens, businesses begin to struggle and corporate insolvency and personal bankruptcy increase again.

Business Survival Techniques

As the talk of doom and gloom intensifies, it is important to implement director asset protection strategies and for small business people to do whatever they can to protect their business  if the worst is to come.

The Insolvency Experts have developed a video series to assist in small business survival techniques that you may find of interest. Tip 1 was introduced in an earlier blog and Tip 2 is below.

Surviving in business is more than a matter of luck. It takes planning and thought in many areas of one’s business. Some of the survival issues that are addressed include;

    1. Director Asset Protection & structures
    2. Budgeting and Preparation of Financial information
    3. Cashflow management techniques
    4. Implementation of policies & procedures
  1. The giving of credit and your protection

A Final Note

Whether or not it can be explained, it seems there is a growing feeling of unease and this could manifest itself in a major economic outcome such as a deep recession or even depression.

While governments around the world have tried to counter the reduction in consumer spending by printing money and pumping it into the economy, it is not clear whether that strategy has done anything other than increase the amount of money in circulation and to raise government debt to unsustainable levels.

What is your experience and belief of where the world is heading?

As always, if you are facing financial difficulties, take control, find out your options and act in your own best interest. Call The Insolvency Experts for help.

Source: smh.com.au; RBA warning; personal savings graph; corporate insolvency graph; personal bankruptcy graph


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Company Liquidation

Does Technology Threaten Your Business?

Unemployment caused by technological change is predicted to affect almost half of the 702 occupations examined by researchers .

The basis of the research was to look at what computers are able to do now, against what they will be able to do, within a 20 year horizon.

Based on this, researchers predicted great variances in job security in different industries noting that 87% of accommodation and food workers were at risk of replacement through automation compared to just 10% of information workers.

Researchers concluded the only thing that stands in the way of ever increasing computer power is creativity, social intelligence and manipulation of objects in unstructured environments.

In other words, you need to identify changes in the market and respond and adapt accordingly or you may face financial oblivion.

Company liquidation Looms with Technological Change

Not only will individuals be threatened with bankruptcy, but many businesses will face company liquidation because of the dramatic rise of computer power.

In fact, we have already witnessed the effect of the internet on Australian retail businesses and employment. How do bricks and mortar retailers adapt and remain viable in a global market where competitors have a number of relative advantages over the local business. It’s not easy but clearly it is possible to change and flourish as many of our retailers have done.

Technological change has already impacted our lives. This research simply points to the fact that as the speed of change increases, more and more of us have the possibility of being affected unless we look at and exercise our options.

Director Protection Strategies

If we can see a change on the horizon, is makes sense to prepare for it in order to survive.

If that change is the rise of computer power, the researchers in this article suggest the best way to prepare for it is by developing our creativity, our flexibility and social intelligence. By investigating these types of alternatives, we can then choose the best course of action for us.

This thought process also applies to a business facing company liquidation.

We know that because a liquidator acts for the benefit of the creditors, the process of liquidation threatens a director and their personal assets. Accordingly, it is important to investigate the available alternatives and to then choose a path that will best protect a directors’ personal assets. The Insolvency Experts can help you with this review in order to achieve Director Asset Protection.

Remember, this review must be performed before a company is placed into liquidation.

Will employees be paid in a company liquidation?

For those business that are not able to adapt, and for the employees that may lose employment because of a company liquidation, The Commonwealth Government provides the Fair Entitlements Guarantee Scheme (FEG). The scheme is designed to protect and deal with outstanding employee entitlements in the event of company liquidation.

The Fair Entitlements Guarantee scheme in most cases will pay out specific employee entitlements if employees are made redundant as a result of a company being placed into liquidation or voluntary administration.

FEG, which is to be seen as a legislative safety net of last resort, will pay out claims (limits apply) for the following entitlements:

  • Unpaid wages – up to 13 weeks unpaid wages
  • Unpaid annual leave
  • unpaid long service leave
  • payment in lieu of notice – 5 weeks maximum
  • Redundancy – maximum of 4 weeks for each full year of service

FEG does not pay out unpaid superannuation and employees should be aware that the scheme will not pay out their entitlements if they resign after a liquidator or a voluntary administrator has been appointed. FEG will only respond to claims if their employment is terminated by the liquidator or a voluntary administrator.

FEG normally responds to employees claims within 12-16 weeks. Once an entitlement is determined, the funds are paid to the liquidator who must then distribute any payment, less applicable taxes, to the employee within a specified time period.

A Final Note

Change is inevitable.

No matter what the situation, sitting around and waiting for something to happen to you is not going to produce the best outcome. You need to take control by reviewing the situation and understanding the alternatives. Once that is done, select and act upon the best course of action for you.

Employees in industries where jobs may be threatened by technological change must change. Directors facing any changing environment must also do something.

If you are facing the possibility of change through financial difficulties, do not sit idle and allow events to overtake you. Take control, find out your options and act in your own best interest. Call The Insolvency Experts for help.

Source: smh.com.au


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Insolvency

Interest Rates Tipped to fall. Will it help business?

The Sydney Morning Herald is reporting that according to the market and leading economists, there is a 92% chance of a further interest rate cut in May 2015. This would see rates drop to 2%.

The speculation of further rate cuts is driven by the ongoing weakness in the economy and in particular, the resources sector. Also weak is business and consumer confidence that manifests itself in reduced spending throughout the economy.

While there is little doubt a further rate reduction would add heat to the already hot house prices in Sydney and Melbourne, the question remains, will another rate cut stimulate the economy?

Have interest rate reductions had a positive effect on the number of voluntary liquidation or forced liquidation appointments?

Voluntary Liquidations – Movement since GFC

 

Quarter 2008 -09 2009-10 2010-2011 2011-12 2012-13 2013-14 2014-15
September 898 931 1,064 1,271 1,385 1,157 1,128
December 902 983 1,009 1,087 1,179 1,175 1,009
March 886 916 1,036 1,099 1,058 935
June 996 1,109 1,228 1,284 1,373 1,161
Total 3,682 3,939 4,337 4,741 4,995 4,428 2,137
+7% +10% +9% +5% -11.5% -8.5%

 Court Liquidations – Movement since GFC

 

Quarter 2008 -09 2009-10 2010-2011 2011-12 2012-13 2013-14 2014-15
September 792 654 721 910 647 1,102 696
December 797 569 685 811 787 797 521
March 680 551 553 871 820 598
June 646 672 679 588 711 564
Total 2,915 2,446 2,638 3,180 2,965 3,061 1,217
-16% +8% +20.5% -7% +3% -36%

 Interest Rates Movements since GFC

The table below details the interest rate movements between September 2008 and February 2015.

 

Date Change Rate
Feb 2015 -0.25  2.25
Aug 2013 -0.25  2.50
May 2013 -0.25 2.75
Dec 2012 -0.25 3.00
Oct 2012 -0.25 3.25
Jun 2012 -0.25 3.50
May 2012 -0.50 3.75
Dec 2011 -0.25 4.25
Nov 2011 -0.25 4.50
Nov 2010 +0.25 4.75
May 2010 +0.25 4.50
Apr 2010 +0.25 4.25
Mar 2010 +0.25 4.00
Dec 2009 +0.25 3.75
Nov 209 +0.25 3.50
Oct 2009 +0.25 3.25
Apr 2009 -0.25 3.00
Feb 2009 -1.00 3.25
Dec 2008 -1.00 4.25
Nov 2008 -0.75 5.25
Oct 2008 -1.00 6.00
Sept 2008 -0.25 7.00

 

Analysis 

  1. At the start of the GFC, interest rates were 7%
  2. From September 2008 to April 2009, interest rates were slashed from 7% to 3% in an attempt to stimulate the economy
  3. In 2008 – 2009, consumer and business confidence had plummeted.
  4. During this period, Voluntary liquidation numbers increased despite the reduction in interest rates.
  5. From September 2008 to June 2010, Court liquidations reduced. The likely reason was government intervention. At the time, the government/ATO assisted companies and employment by accepting installment arrangements, rather than pursuing recovery through court liquidation.
  6. From April 2009 to November 2010, interest rates increased from 3% to 4.75%.
  7. Voluntary Liquidation numbers continued to surge.
  8. Court liquidation began to increase during 2010 – 2012
  9. Interest rates peaked at 4.75% in November 2010 and then began a steady decline from November 2011 to 2.25% in February 2015
  10. Liquidation appointments continued to rise until 2013 (despite rate reductions) when the trend was finally reversed.
  11. This year has seen a reduction in voluntary liquidation and a dramatic fall in the number of Court liquidations.

Conclusion

There appears to be a correlation between interest rates and the number of court and voluntary liquidation appointments, albeit there seems to be a lag of between 1 – 2 years.

While interest rates appear to have a positive impact on the number of liquidation appointments, the same might not be said of both the Australian Business & Consumer confidence indexes. Both appear headed toward negative territory despite record low interest rates.

With the uncertainty that exists in the world at present, small business must do whatever they can to protect themselves. For this purpose, The Insolvency Experts have developed the video series “Tips for Small Business Survival”.

Source: smh.com.au, ASIC statistics


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Company Liquidation

What Australian Directors can learn from China’s Economic slowdown

News.com.au recently reported on the effect China’s economic slowdown is having on Queensland mining towns, particularly in the Bowen Basin, that are currently being devastated by falling consumption in China.

While many, including the Australian Coal industry, pinned its hopes on China’s promise of perpetual economic growth, falling consumption, coupled with an over supply and falling price is having dire consequences on individuals, businesses and communities in Australia.

The loss of communities and the movement of individuals not only impacts the unemployment numbers, but also means many local business owners will face the prospect of liquidation and business failure.

What can company directors and small business learn form this Slowdown?

Director Have Responsibilities

Where communities fail, businesses close and for many, this will raise the question of Voluntary Liquidation. However, as the process poses  serious threats to directors and their personal assets, directors should understand and plan for the dangers before a liquidation begins.

Unfortunately, with the pressure of impending insolvency being as great as it is, many directors Liquidate believing that to be their only option. But this is wrong. There are many options available and The Insolvency Experts will explain them to you.

Before you decide on liquidation, you as a director need to understand how the process of voluntary liquidation will affect you and what legal obligations will be imposed upon you by the Corporations Act and the liquidator.

An unplanned liquidation may not only be a traumatic and costly experience, but it may also be the wrong decision for you.

Liquidation presents serious risks to directors and as such, it is in your best interest to seek advice from your perspective before any formal appointment is made. If you are thinking about a creditors voluntary liquidation, here are three things you should consider.

Company Directors in Voluntary Liquidation are Investigated

When a Director places a company into voluntary liquidation, they effectively agree not only to relinquish control of their business but also to submit themselves to a detailed forensic examination by the liquidator.

A liquidator has a duty to the creditors to explain the reasons why a company has failed and why they have suffered loss. In trying to explain this, the liquidator will closely examine each transaction of the company and particularly those involving the director.

If any breaches of the Corporations Act are discovered, the liquidator must be report it to the creditors and the Australian Securities & Investments Commission. Depending on the conduct, this can lead to the prosecution or disqualification of directors.

Director are legally obligated to meet with the liquidator and to assist with the investigations. If a director refuses to attend certain meetings or to provide various information, the liquidator may seek to have a director prosecuted by the ASIC. Further, if a director is unwilling to co-operate with the reasonable requests of the liquidator, they may be summons to attend a Public Examination in an open court. Failure to attend can result in directors being arrested.

To enable the liquidators investigations, Company Directors must provide:

  • The Company’s books and records of the company or details of where they are held
  • Records and Documents relating to the activities of the company and its assets.
  • Explanations as to the disposal or sale of company property
  • Explanation as to the transactions of the company

As noted above, a failure to adhere with the liquidator’s investigations is considered a serious breach of the Corporations Act.

ASIC successfully prosecuted a number of company directors in 2014 for various breaches of the Corporations Act 2001. Many of these prosecutions were for offences including the failure to assist external administrators.

Directors may be subject to banning orders

A Director that has been found by a liquidator to have breached the Corporations Act may be subject to disqualification order by the ASIC.

In practice, a liquidator will undertake a detailed investigation into the affairs of a company and the conduct of its directors. If the liquidator forms the view that a director has engaged in certain breaches of the Corporations Act, including a failure to provide records, or repeatedly behaving in the same manner and that the person has been involved in a number of failed companies, the Liquidator may submit a report to the ASIC recommending banning orders be sought.

If a person has been involved in the failure of 2 or more corporations that have been wound up within 7 years, they may be disqualified from managing corporations for up to 5 years. In some cases, ASIC may even apply to ban a person from acting as a director for up to 10 years however this is somewhat more unusual.

The process of director banning may be challenged through the Administrative Appeal Tribunal and/or the Court however successful challenges rarely occur.

Assetless Administration Fund

Even when a company in liquidation has no funds, the liquidation process still presents directors with significant risks. The reason is that a liquidator may apply for funding under the Assetless Administration Fund.

The fund which was established by government, and that is administered by the ASIC, enables liquidators to undertake investigations and produce detailed reports into the conduct and behaviours of specific directors.

The resulting reports assist the ASIC in its enforcement activities and the banning of directors navigate to this site. A particular focus of the fund is to stop illegal phoenix activity.

A Final Note

The Voluntary Liquidation process requires liquidators to perform a detailed investigation into the reason for the failure of a company as well as the conduct of the directors. This involves a forensic review of all transactions of the company as well as the use of company property and funds by the directors. In addition, the liquidator will examine whether or not the directors allowed the company to trade while insolvent. If the liquidator can demonstrate breaches of directors duties and a failure to fulfil their responsibilities in the best interests of the company and its creditors, they may seek prosecution or take legal claims against the directors.

Considering the serious risks to directors who may be contemplating voluntary administration or voluntary liquidation, it is appropriate that all directors seek advice and information on all the alternatives to determine what would be the best course of action for themselves and their personal assets.

Source: News.com.au


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Voluntary Administration

Voluntary Administration – Assess Your Liability

Like all other financial decisions, a Voluntary Administration carry risk not only for the company, but also for directors personally.

Companies place themselves under both Voluntary Administration and liquidation when the pressure of mounting debt and the potential of insolvency becomes too great.

However, as both types of external administration are controlled by specific sections of the Corporations Act, company directors need to understand the legal obligations that will be imposed upon them and the role of the administrator/liquidator.

Director Liabilities and Responsibilities

An unplanned liquidation can not only be costly, but may also present unacceptable risks to directors. This is why we always recommend you seek advice from your perspective before any formal appointment is made. If you are thinking about a voluntary administration or a voluntary liquidation, here are three things you should consider.

Company Directors in Voluntary Administration lose control of the Company

Company Directors in voluntary administration or liquidation effectively relinquish control of their business.

Not only does a director lose control, but total control is now held by the administrator or the liquidator.

In the case of a Voluntary administration, the administrator will investigate whether the company can continue to trade for the purpose of offering creditors a proposal as to how the debt will be repaid BUT if at any time the administrator forms the view that the business is not profitable, he can close the business – and there is nothing a director can do or say to reverse that decision short of introducing funds to cover any shortfall.

It could be in our DNA to shop for the lowest price. In fact, it makes perfect sense to do so, but a company liquidation is not a product you can take home, own or control. As soon as you place a company into liquidation, the liquidator takes control, and you are answerable to them.

Apart from a total loss of control, directors choosing to appoint in either a Voluntary Administration or Voluntary Liquidation have subjected themselves to a very detailed and forensic examination of their performance.

The administrator will examine each transaction of the company and particularly those involving the director. If any breaches of the Corporations Act are discovered, they must be reported to the creditors and the Australian Securities & Investments Commission.

Similarly in a voluntary liquidation, there is a detailed investigation into the affairs of the company and its officers and again, a report is lodged with the ASIC and in both cases, this can lead to prosecution of directors.

Directors Must Assist the Administrator in their Investigation

A Director has a legal obligation to meet with and assist the external administrator with all reasonable requests. A voluntary administrator and liquidator can require a director to attend certain creditors’ meetings and to provide various forms of information. A director may be summons to a liquidators office or a Public Examination. Failure to attend can result in directors being arrested.

Specifically, Company Directors have a legal obligation to provide an administrator with:

  • The details of the location of all company property
  • The Company’s books and records
  • The location of any other required records
  • Records and Documents related to the activities of the company and its assets.
  • Explanations as to the disposal or sale of company property

A failure to adhere with the liquidator’s investigations can have damaging consequences for directors as it is regarded as a serious breach of the Corporations Act.

Between October and December 2010 ASIC successfully prosecuted 75 individuals for various breaches of the Corporations Act 2001 for offences which included the failure to assist external administrators.

Director Penalty Notices Go Beyond Wages

As of  June 1993, the Australian Taxation Office (ATO) has exercised the authority to issue Director Penalty Notices (DPNs).

Company Directors who fail to respond or take action regarding these Notices become personally liable equivalent to value of the taxes that have not been paid.

These provisions now go beyond PAYG withholdings not remitted to the Taxation office and now include unpaid superannuation guarantee charge liabilities for the company.

From 2012, the ability of a director to avoid personal liability by placing the company into administration or liquidation has been removed where amounts have been unreported and unpaid for over three months.

These changes in legislation have had an enormous impact on director liability and means that Directors can be held liable for unpaid PAYG withholding or SGC amounts.

Prior to these law changes, a director could place a company into liquidation and avoid personal liability for a company tax debt.

Since the law changes, there appears no incentive for a director to liquidate as there is no mechanism for avoiding the personal liability for company tax. That is, we have noticed many directors choosing to stay in business to at least have an opportunity of paying the tax debt rather than liquidation and facing the certainty of personal debt and possible bankruptcy.

A Final Note

Administrators are required to investigate all activities of company directors while the enterprise was trading insolvently. If an administrator or liquidator can demonstrate that the directors did not perform their duties and fulfil their responsibilities in the best interests of creditors they may be accused of breaches of their directors duties under the Corporations Act.

A director who is subsequently found guilty of such breaches can, depending on their prior history, be banned or disqualified from acting as a director. The usual banning period is between 1 – 5 years but there are provisions that enable even lengthier bans.

Therefore, if you are thinking of voluntary administration or voluntary liquidation as an easy way to duck your responsibilities or avoid repaying debts, it may be wise to first consider other options in order to prevent putting you and your personal assets at even greater risk.


Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.

Categories
Director Liabilities

Personal Liability for Company Debt

At law, a company is a separate and distinct legal entity from its owners and controllers. As such, the company is responsible for the payment of its debts.

A director has no personal liability for company debt however, the protection of a company structure is often signed away to suppliers who insist on a personal guarantee before agreeing to provide goods or services on credit.

Directors have no personal liability for a company debt unless the director gives up the legal separation. This can occur by doing one of the following:

  • Signing a personal guarantee that promises to pay a company debt if the company can’t pay
  • Failing to comply with a Director Penalty Notice issued by the Tax Office in respect of unpaid PAYG and superannuation.
  • trading while insolvent

Personal Guarantees

By signing a personal guarantee, the director has agreed to pay the company’s obligations from his/her own assets in the event the company cannot meet its obligations.

Signing a personal guarantee is an enforceable promise that exposes your personal assets

A personal guarantee is legally enforceable and means the company’s creditor may attack a directors’ personal assets.

Personal guarantees are often sought to secure debts for;

  • Supply accounts
  • Company credit cards
  • Hire Purchase or Leasing contracts

Because personal guarantees expose a directors assets, they should be avoided wherever possible.

Suppliers will often ask for a personal guarantee but directors should refuse. If certain supplies are only available from a few sources, it may not be possible to avoid a personal guarantee.

In these cases, a director should consider providing a limited personal guarantee up to a specific amount strattera weight loss. If a supplier ultimately allows the debt to increase beyond the agreed amount, the amount over the specified limited will generally not be recoverable under the personal guarantee.

Unfortunately, banks and finance companies, have very sophisticated paperwork and it is usually not possible to avoiding a personal guarantee when dealing with such institutions.

What is the best advice on personal guarantees

The best advice is to read and understand every document before signing it. If this involves seeking legal advice – do so. The small amount spent now will save you money and protect your personal assets in the long run.

A Double Standard – but in your best interest

 

Never ever sign a personal guarantee where it can be avoided. But always insist on a personal guarantee from a director if you are asked to provide credit by a company.

 

Director Penalty Notice

A Director Penalty Notice can lead to personal liability for a company debt, specifically in relation to unpaid PAYG and unpaid superannuation

A Director Penalty Notice works in 2 ways

First, where all BAS & Super returns are up to date, with all having been lodged within 3 months of the due date, a director receiving a Director Penalty Notice will have 21 days in which to do one of the following and avoid personal liability for company debt.

Compliance involves doing one of three things.

  1. Pay the debt in full
  2. Appoint a Voluntary Administrator
  3. Appoint a Liquidator.

If compliance is achieved within 21 days, the director will avoid personal liability for the stated company tax debts.

Second, If all or some BAS & Super returns have been lodged more than 3 months after the due date for lodgement, a director will become automatically personally liable for the company tax debts – no avoidance of personal liability is possible.

If a director has not lodged a return or any returns, the ATO can issue an estimate of the debt and follow that with a Director Penalty Notice that will find the director personally liable for company debt.

Insolvent Trading

A director must not allow a company to trade and incur debts when it is insolvent.

A company is insolvent when it is unable to pay its debts as and when they fall due for payment.

If a director allows a new debt to be incurred knowing the company is insolvent, the director may be guilty of insolvent trading. If this occurs, a director may become personally liable for the repayment of the debts he allowed the company to incur.

Liquidators or an individual creditor with the permission of the liquidator, may bring may commence a claim for insolvent trading against a director personally.

There are always options

Directors need to understand that no matter how dire the financial situation,  liquidation is not the only solution. It is only one of many alternatives that are available to you. 

In this regard, The Insolvency Experts will help you investigate and understand all your options to ensure you select the best step for you and your family’s financial survival.

Categories
Insolvency

Can I liquidate my own company?

 The short answer is No!

Do I have to place my company into liquidation?

Again, the short answer is No!

However directors do have a positive duty to prevent trading while insolvent – but this can be achieved without liquidating.

If I don’t have to liquidate, who will do it?

Let’s talk about that. Before we do, you need to understand –

Who does liquidation benefit?

When a company’s liabilities exceed its assets, there is an expectation that an independent person should be appointed to explain the reasons for failure and to investigate whether the directors have acted appropriately, or illegally.

Because of this investigative role, the appointed person must be entirely independent of the directors.

Independence is critical and all liquidators maintain it.  Even where directors select and pay a liquidator, they have no control over the process whatsoever.

The liquidator acts for the benefit of the creditors

Liquidation of insolvent companies must be performed by a registered liquidator who acts in the best interest of the creditors.

As the creditors representative, the liquidator will perform a detailed investigation that will seek to explain why money has been lost.

In doing this, the liquidator will closely review the records of the company with particular attention to large or unusual transactions as well as all transactions involving the directors over many years.

When liquidators identify illegal or voidable transactions, insolvent trading or unpaid director loan accounts, they will regularly take legal action against the directors and their personal assets. They do this in order to achieve a return for the creditors.

Is company liquidation the best step for you?

An unplanned liquidation can be a disaster for the directors and their personal financial position.

Even when the situation is desperate, liquidation is not your only option. It is only one in a range of options that you as a director need to consider – and consider from your perspective.

So before you liquidate, make sure you can answer the following;

  • is company liquidation at this moment really the best step for you personally and financially?
  • are there other alternatives that would produce a better outcome for you and your family?
  • if liquidation is appropriate, is now the right time and am I fully aware and prepared for the risks associated with such a choice?

The Insolvency Experts act in your best interest and will ensure you are fully informed before you take any step.

Can you liquidate you own company? – No – but you can take control through knowledge of all options available to you.

Categories
Company Liquidation

How to liquidate a company in Australia

Placing an insolvent company into liquidation in Australia is a simple and relatively inexpensive process that requires 3 basic steps;

  • Select a liquidator; then
  • pass a directors’ resolution that the company is insolvent and call a meeting of shareholders; then
  • the shareholders should resolve to appoint a liquidator – this resolution must be passed by a 75% majority of members

While the process of placing a company into liquidation is simple, deciding on whether liquidation is appropriate or not is far more complex.

The best way in which directors can decide on whether liquidation is appropriate is to obtain honest and competent advice from a licensed and registered professional.

The Insolvency Experts are licensed and Registered Liquidators and can be called 24 hours a day on 1300 767 525.

What happens when you liquidate a company in Australia?

When a company is placed into liquidation, the powers of the director are immediately suspended and the Liquidator takes full control of the company and any business and/or assets. See the powers of a Liquidator at Section 477 of the Corporations Act.

Apart from taking control of the assets, the liquidator is required to perform a detailed investigation into the failure of the company.

During this process;

  • directors are required to assist the Liquidator’s investigations by providing books and records and assisting with the liquidators reasonable requests for assistance.
  • At the conclusion of the investigation process, the Liquidator must report to the ASIC and to the creditors.

Do not liquidate a company until you understand the potential impact on you

Liquidation is only one of many options that must be considered.

Is liquidation really the best step for your company? Are there alternatives?

The Insolvency Experts will explain the risks and benefits of company liquidation. Find out which strategy is best by calling The Insolvency Experts today.