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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!

 


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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.

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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!

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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

Categories
Company Liquidation Director Liabilities

How Does Liquidation Affect A Director’s Assets?

How Does Liquidation Affect A Director’s Assets | The Insolvency Experts

When all else fails and a business finds themselves on the brink of insolvency, the director of a company may have no choice but to seek professional advice on completing a liquidation. Insolvency simply means that a business can no longer pay its company debts as and when due to payment – a feeling all too familiar for many business owners.

Types of Company Liquidation

There are three essential types of liquidation that a business may fall into during insolvency:

  • Creditors Voluntary Liquidation — This sort of liquidation occurs when insolvent companies’ shareholders initiate it. A liquidator can take control very quickly, and handle the entire process without much difficulty. The directors will still need to assist in some respects, but they will maintain no control over the company’s goings-on.
  • Members Voluntary Liquidation — The director of a company and its shareholders initiate this sort of liquidation; all members of the business must agree upon the terms of this type. Again, the director will need to offer the appointed liquidator some assistance here and confirm the company has sufficient assets to meet all liabilities in full.
  • Court Liquidation — This is certainly the worst type of liquidation in which a company can find itself. It happens when a creditor or shareholder applies and receives a court order; at that point, the court will appoint a liquidator and the process will be handled with or without the director’s assistance. This can prove very unconformable for a director personally. Also, where a company is compelled into liquidation, it is more likely that claims of insolvent trading may be made.

The Insolvency Experts offers information sheets on the different types of insolvency, so both directors and shareholders can get a grip on which type of liquidation best serves them once they have reached insolvency.

The Insolvency Experts is comprised of qualified professionals that have operated within the insolvency industry for over 50 years; it’s a great resource for directors who want to ensure that they’ve done everything possible to comply with regulations concerning their positions.

In addition to serving as a resource about different types of liquidation, the Insolvency Experts can also offer directors guidance on how they might be able to change the course of their company when it appears that it’s headed toward insolvency.

How Different Types of Liquidation Affect Directors

Much of how liquidation affects a company’s director depends on that director’s practices prior to the liquidation, namely whether the director upheld their legal duties. While we’ll dive deeper into that topic, later on, let’s first take a look at how directors can expect each type of liquidation to play out.
During any type of creditors voluntary liquidation, directors are expected to assist the liquidator and insolvency practitioner in any reasonable way necessary. Although the liquidator has actually taken control of the company at this point, the director is still required to supply them with all necessary supporting documents, like books and records.

Additionally, the director must be able to list any liabilities and assets that the company has at the time of insolvency, and explain the company trading and any uses of its funds. These points become extremely critical when assessing the director’s personal liability; this is because a director has to have a verifiable explanation for every move the company has made, since they’re expected to maintain current knowledge of the company’s financial status.

At this point, directors can expect secured creditors (meaning those that have a secured claim to the business’ assets) to collect on their debts or assets if possible. Fortunately, this is the only type of creditor that can collect once a business enters insolvency. In this way, liquidation can save a company (and indeed, its director) from further losses. Basically, a business has to know when to say when and just fold, or they could end up in a far more dire situation.

Still, there is another option if a business has not yet entered a state of irreparable insolvency: voluntary administration. This is a sort of good faith agreement wherein a voluntary administrator, usually with the assistance of the director, will take control of a company and its trading habits for around a month to try and turn things around.

During this period, directors draft a proposal to be sent to creditors; the proposal will offer a higher return to the creditors than what they would see should the company be liquidated. Essentially, voluntary administration is a last-ditch effort to save a company from liquidation. It buys the company some time to drum up the money they owe, and it’s incentivized with extra capital to creditors.

If creditors agree to the proposal, directors simply have to make sure that they find a way to hold up their end of the agreement; this promise can prove difficult to keep, but it can save the business for the time being. In some cases, creditors either won’t agree to the proposal, or the proposal won’t be completed as outlined. At that point, liquidation is simply inevitable.

Directors Duties When Solvency Comes in Question

It’s no surprise that directors are left to explain things when a company enters a state of insolvency. Of course, the most basic of these duties is to simply maintain accurate books and records so that they are able to stay aware of the company’s financial situation at all times.

Beyond that, directors must also take an active role in mitigating any potential questions about a company’s solvency. They need to question inconsistencies, and seek the help of qualified professionals when they’re unsure of how to proceed.

While these duties might go without saying for some directors, others let their responsibilities slip (whether accidentally or intentionally) and find themselves in a slippery situation.

When Directors Become Personally Liable

Under the Corporations Act, directors are expected to be diligent and careful as they act in good faith toward a proper purpose for the company. Naturally, this means that if a director acts in a way that is self-serving or somehow harmful to the company, they have violated their role and their duties, leaving them vulnerable to liability.

One of the simplest ways that a director can fail to uphold their duties is if they do not keep 7 years of accurate records as is required by law. While this is obviously poor practice for a director in general, it becomes especially dangerous if a claim of insolvent trading is made.

Insolvent trading is the practice of incurring further debt and continuing trading as usual when the director knows that the company is insolvent and unable to pay its debts. The problem is, even if no insolvent trading occurred, a director has no defence against the claim if they haven’t kept accurate records for the required period of time.
Unfortunately, without the necessary documents to back the director up, their assets can be claimed in this sort of battle. If the claim alleges high enough losses, the director may even have to file for personal bankruptcy.

While simply failing to keep detailed records is one thing, intentionally engaging in insolvent trading is another altogether. If a director is aware that a company isn’t solvent, yet continues trading as usual, they’re committing a serious miscarriage of their duties, and can certainly be held personally liable.

With the potential for personal assets to be seized, directors need to be especially mindful of their companies’ financial situations. If there’s any question of solvency whatsoever, a director should gather adequate documentation to prove that they had reason to believe that the business was still financially viable.

This way, the director may be protected from personal liability, even if the company does eventually become insolvent and claims of insolvent trading are made. For extra diligence, it’s a good idea for the director to reach out to an industry professional that can assist them with verifying a business’ current solvency, and can show that the director acted in good faith.

Complying with Regulations

So long as a director fully understands their duties and has performed them to the specifications described in the Corporations Act, they shouldn’t have much of anything to worry about when it comes to personal liability for their company’s insolvency.

Still, there are instances in which a director has unwittingly failed to meet one of these duties completely, and they are blindsided with an attempt to go after their personal assets. Rather than leave anything up to chance, a director should make a habit of consulting a service like The Insolvency Experts so they can enjoy peace of mind that they’re performing their jobs satisfactorily.

A director that operates with integrity shouldn’t have a hard time avoiding the potential personal burden of insolvency, but it’s impossible to be too careful in these situations. Rather than leave anything up to chance, contact us to ensure compliance, and thus ensure the protection of personal assets.

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

Categories
Company Liquidation Insolvency

Will Liquidation Of My Company Cause Me Bankruptcy?

Will Liquidation Of My Company Cause Me Bankruptcy? | Insolvency Experts

If you’re a company director in Australia, and you’re having financial difficulty in your business and your company’s affairs, you may be considering working with registered liquidators to liquidate your company.

But when you wind up a company and creditors deal with the liquidator of your company, do you have to declare bankruptcy? Will liquidation cause you to lose your home or cause you to incur any other personal debts? In this blog from Insolvency Experts, we’ll answer these questions and many more. Let’s get started now.

Note: This post is for informative purposes only. Consult appropriate legal counsel before considering insolvency or corporate liquidation.

Bankruptcy Is For Individuals, Liquidation Is For Companies

First, let’s discuss a common misconception that company directors get confused about when they decide to declare that their company is insolvent. Personal bankruptcy is for individuals. If you cannot pay your debts – your personal debts – you may need to file for bankruptcy.

In contrast, liquidation is for companies, and is used when the company is in too much debt to continue operating. It’s for corporate debts – not personal debts.

These two processes are largely unrelated. Because of this, you will not automatically go bankrupt when you decide to liquidate an insolvent company. In fact, it can be that you will not incur any significant personal losses at all when you liquidate a company. Let’s discuss this subject in more detail now.

Company Liquidation Will Not (Usually) Cause You To Go Bankrupt

Even as the director of a company, you are legally distinct from your company. Even if your company is not able to pay its debts from its own resources, you, other directors, and shareholders are not required to pay for those debts personally.

Instead, your company alone is responsible for paying these debts. Even if your company does not have enough money to repay all the debts it has, these will not fall to you – they stay with your company. There are some exceptions, though, which we’ll discuss now.

There Are Exceptions For Company Directors – Understanding What Can Lead To Bankruptcy

There are some circumstances where, if you are a company director, you may be personally responsible for certain business debts incurred by your company. Here are a few examples of exceptions that could lead to personal debt – and even bankruptcy – for company directors.

  • Personal guarantees – A personal guarantee is a type of debt or legally enforceable agreement where, if your company is unable to pay its debt, the guarantor of the loan (usually the company director) will be personally liable for repaying this debt.

Essentially, this means that the lender will have a direct claim on you and therefore your personal assets – you will have to pay the debt, or negotiate an appropriate settlement or you may be forced into bankruptcy. That’s why it is risky to take accounts or loans for a company with personal guarantees attached.

  • Insolvent trading – Insolvent trading is an illegal activity, and can result in stiff legal penalties. If you take on new debt for your company when you know that is already insolvent and cannot pay its current debts when they come due, you may be found responsible for insolvent trading.

If you are found guilty of insolvent trading, you may be held personally liable to repay creditors, which can lead to loss of your assets or even bankruptcy.

  • Tax and super – If you are issued a DPN (Director Penalty Notice) by the Australian Taxation Office (ATO), you can be held personally liable for corporate tax debts. You cannot be held liable for unpaid Company Tax or GST, but you can be held liable for unpaid PAYG taxes and unpaid superannuation. In fact, with changes coming in April 2020, a director may be personally liable for unpaid GST where debts are not reported within 3 months of the due date for lodgement.
  • Breach of director duties – Company directors are held to certain standards. As a company director, you are required to regularly review the finances of the company, take steps to confirm its financial position and solvency, get help from professionals if you notice a problem, and act in a timely manner to resolve solvency issues.

If you take these steps and your company still becomes insolvent, you are less likely to be held liable for its debts. But if it can be proved that you did not adequately perform your duties as a director, you may lose personal assets through claims for insolvent trading and other such issues.

  • Illegal transactions – Illegal transfers of assets, such as a “Phoenix transaction,” where the assets of an indebted company are transferred to a new, debt-free company for the purpose of avoiding claims from creditors, can result in stiff penalties and the loss of personal assets and property, resulting in bankruptcy.

As long as you have not performed illegal or unethical activities, are paid up on your taxes and superannuation, and have not signed any loans with personal guarantees, you likely will not need to worry unduly about your personal assets being taken during the liquidation process.

What To Expect From Liquidation Or “Winding Up” A Company

Liquidation is one of the three common types of insolvency for companies in Australia. The options you have for declaring insolvency include liquidation or voluntary administration. A Deed of Company Arrangement (DOCA) may also be used in a successful voluntary administration.

Of these options, liquidation is typically the most straightforward process for declaring insolvency, and wrapping up a business’s operations. Let’s discuss the basics of the liquidation process now.

  • Creditors Voluntary liquidation – In order to deal with creditors claims, a voluntary liquidation may be used. This process is instigated by the director and shareholders.

If the directors and shareholders choose not to appoint a liquidator, a creditor may petition the court to wind up a company with a winding up application. This legal action will result in a court appointed liquidator of the company.

  • An independent, registered liquidator is hired – Once a liquidation has begun, a liquidator will appointed. Regardless of whether the liquidator is appointed by the Court or the shareholders, they work as an independent, neutral party, free of any conflicts of interest. They work for the benefit of the creditors of the company.

The duties of the liquidator are to wind up the affairs of the company, develop an understanding of the assets & property of the company, distribute assets among creditors, and investigate and report to the ASIC the circumstances of the company’s insolvency.

  • The liquidator conducts an investigation of the company – The liquidator will work with the company director and personnel to get an understanding of the company’s assets and liabilities, and they will look at financial statements, transactions, and other information to determine the cause of insolvency.

Legal action may be taken against the director(s) – In cases (such as those mentioned above) where a company director’s actions has contributed to the failure of a company, legal action or penalties may be levied against the company director.

  • All company assets are collected – A full inventory of all corporate assets will be created, and all company assets will pass into the legal control of the liquidator.
  • Creditors may make claims to the liquidator for outstanding debts – Secured creditors, unsecured creditors, and other creditors who have a claim for debts incurred by your business may seek claims from the company in liquidation. The liquidator will take control of the company’s assets to pay them off, based on the priority of their claims. When all of your assets are realised and debts have been paid to the extent possible, the process is concluded.

This is just a basic overview of the process. For more details, you can consult this guide from ASIC.

Learn More About Insolvency & Filing For Liquidation From Insolvency Experts

As licensed and registered liquidators and administrators, the team at Insolvency Experts can help you understand the entire Australian liquidation and winding-up process for businesses.

If you are having financial trouble at your business and are exploring your options for insolvency, we’re here to help. Contact us now, and get the information you need to make the right decision for yourself, your business, and your employees!

Categories
Company Liquidation Insolvency

If My Company Goes Into Liquidation, Will I Lose My House?

If My Company Goes Into Liquidation, Will I Lose My House | Insolvency Experts

If you are considering working with an insolvency practitioner and your company may go into liquidation, you might be wondering what’s going to happen to your personal assets. Do you have personal liability for debts taken on by your company? Will you have to declare bankruptcy, or will you lose your home if your company goes into liquidation?

At Liquidation Experts, we have more than 30 years of experience in liquidation, corporate administration and insolvency in Australia – and we’re here to help. In this article, we’ll discuss the basics about liquidation, bankruptcy, and the potential impact of liquidation on your assets property – including your personal home.

Note: This information is for informational purposes only. Consult with the appropriate legal counsel before making any decisions about liquidation, insolvency, and other such corporate restructuring changes.

You Are Not Responsible For Company Debt – Your Personal Assets Are Protected

As the director of a limited company, you have limited liability when it comes to company debt. You will not be held personally liable for the debts, in most cases – meaning your personal assets are protected, and there is no need to file bankruptcy, or worry about your house being taken when you go into liquidation.

If your company only has unsecured debt, you have no reason to worry about your house being taken if you enter liquidation. Your creditors will not have any claims on your personal assets – even if your corporate funds have run out and the liquidation process see creditors unable to be fully repaid, they will have no claim on your home, your property, or your personal assets, and you will be fully protected, unless insolvent trading or similar is found to have occurred.

In the vast majority of cases, this means that you will not have to worry about bankruptcy – or losing your house – after your company has been declared insolvent and has entered the liquidation or winding-up phase.

However, there are some situations in which it could be possible to lose your house during liquidation. Let’s discuss these in the next section – and how you can avoid these problems.

Is It Possible To Lose My House During Liquidation?

Unfortunately, there are some issues that could occur during liquidation that may affect your personal assets – and could lead to bankruptcy and the loss of your home.

  • Loans with personal guarantees – A personal guarantee is exactly what it sounds like. This is a type of loan where one or more persons (usually the company director) agrees to take on personal liability for business debt when the company cannot pay.

The loan or credit is issued to the company, and can be repaid by the company – but if it is not repaid, the creditor has a direct claim on the guarantor and potentially their personal assets. Even if you enter winding-up/liquidation procedures with your company, you may still be held liable for such debts if you took out a loan or credit with a personal guarantee.

The best way to avoid this issue is to never sign personal guarantees. This may be difficult for new business owners, and it can be tempting to sign a personal guarantee to get credit or a loan – but it could lead to the loss of your home or personal assets.

  • Secured loan on your home – If you’ve taken out a home equity loan against the value of your home for your business, or you have taken out a business loan that is secured by the value of your property, you will still be held liable for these debts after your company enters insolvency.

If you are not able to repay the loan or work out some kind of payment plan, you may have to declare bankruptcy or be forced into bankruptcy – or the lender may be able to foreclose on your house directly, depending on the circumstances.

  • Director loan accounts – It’s common for directors at any size company to have director loan accounts, from which they have borrowed money – or deposit money to be used in loans. If you have an overdrawn director loan account (you owe money to your company) this debt will not be discharged in liquidation – you will still be responsible for paying it.

To avoid issues related to this, be ethical in how you use director loan accounts – and keep tight controls on how they are used to prevent borrowing from the company from spiraling out of control. Large, unpaid director loan accounts will need to be paid.

  • Tax/super debts – If you have unpaid PAYG taxes and unpaid superannuation, you may be hit with a Director Penalty Notice (DPN) from the Australian Taxation Office (ATO). Even in liquidation, you will be held personally responsible for paying these unpaid taxes. From 1 April 2020, this will also relate to unpaid PAYG in certain circumstances.

To avoid tax and super debts, ensure that your company is paid up on GST/PAYG taxes and superannuation at all times. Minimizing the amount of unpaid tax/super debts from the ATO will help safeguard you from personal liability.

Unethical behavior as a company director such as Insolvent Trading – Illegal, unethical behavior as a company director can result in a wide variety of penalties being levied against you – and even the loss of your personal assets, if judged appropriate by the court.

For example, if you are found to be responsible for insolvent trading – taking out more loans and debts when you were already unable to repay your current debts – you could be penalized heavily, and ordered to repay debts from your personal assets. This could result in bankruptcy and the loss of your house.

Another issue that could result in penalties is a “Phoenix transaction,” where company assets are transferred from one heavily-indebted company to a company without debt – with the intent of avoiding repayment to debtors during the insolvency process.

You may also be subject to penalties if you’re found to be in breach of your duties as a company director – not paying attention to the solvency of your company, failing to do due diligence on your financials, and so on.

As a company director, the best step to avoiding the loss of your house during liquidation is to be a diligent, reputable, and ethical company director. All of these above issues can be avoided if you are responsible – and avoid loans secured with your personal property, do not over-utilize director loan accounts, pay your taxes on time, and perform your job duties responsibly.

Consult WIth Liquidation Experts – Prepare For Insolvency & Liquidation The Right Way!

If you’re worried about losing your house when your company is found to be insolvent and is liquidated, we understand. The stress of winding down a company can be very difficult to deal with, particularly if you’re worried about your personal assets.

Need help understanding the process of company insolvency, and preparing for your own company to be liquidated? If so, Liquidation Experts is here to help. As ASIC-licensed, registered liquidators and administrators, we can help you understand what will happen throughout the liquidation – and give you the advice you need for a successful company liquidation in Australia.

We offer free advice 24/7, and can help you find the solutions you need to wind your business up successfully while protecting your personal assets. To get started, just give us a call at 1300 767 525, or contact us online.

Categories
Company Liquidation Insolvency

Top 10 Reasons People Choose Voluntary Liquidation

Top 10 Reasons People Choose Voluntary Liquidation | Insolvency Experts

The thought of liquidating can be scary. The idea of losing everything you’ve worked so hard for is terrifying. You don’t know what to expect. You don’t know the process. You probably don’t even know the right questions to ask to see if liquidation will help you.

All you know is things are not working. You’ve got bills you can’t pay. Your relationships are suffering and so is your health. Each night you stare at the ceiling wondering what will happen. Will they send you to jail? And everyone is screaming at you to make things right.

That’s the feeling many of our clients have before speaking with us and before they make the decision to liquidate.

But once they decide, most of our clients report that liquidation helped them move on and improve their lives.

So, here are the Top 10 reasons why people choose Voluntary Liquidation.

  • You Can Choose The Liquidator

If you don’t choose the liquidator, the Court will appoint one chosen by your creditors.

So, if you can choose, what do you want in a Registered Liquidator? 

Apart from being qualified and knowledgeable, most people want a liquidator that is: 

  • Always Available 
    • Clients receive our mobile phone numbers so that contact is always possible, 24 hours a Day and 7 days a week. We are always available to help.
  • Approachable 
    • Throughout the process, our clients know they can discuss any issue at any time.
    • Our clients are always treated with courtesy and respect.
  • Sensible & Understanding
    • We know people don’t set out to go into liquidation.
    • We also know the process impacts not only creditors, employees etc but directors and their families too.
    • We aim for balance in our approach so that all parties are taken care of as far as is possible.
  • Commerciality 
    • Sometimes issues arise during the process that need to be resolved.
    • We believe all issues should be resolved in the most sensible, cost effective and timely manner possible. Where our clients hold similar views, the best results are achieved.
  • Immediately End The Stress Of Continual Creditor Harassment

If you don’t choose to voluntarily liquidate, creditors will continue to hassle you for payment. The calls will not stop!

And this can go on for months if not for years as it takes a long time and costs a lot of money for a creditor to go to court. They would far prefer to continue trying to extract money from you rather than spend more going to court.

However, you need to know from the moment you place your Company into Liquidation, you don’t need to answer any more calls or deal with any demands for payment.

The only thing you need to do is to provide us the information we need to deal with the Company’s issues and creditors.

We can place your company into liquidation within hours, provided you’re happy to assist us as needed.

  • Immediately Divert Creditor Attention From You To The Liquidator’s Office

The first thing we do is write to the creditors and tell them the Company is in liquidation and that they need to deal with our office. 

We tell creditors the time frames involved and what to expect from our work.

From that point onwards, any interest in the Company is directed to us and diverted away from you. Creditors can only seek answers from us.

You don’t need to answer endless calls for payment anymore.

  • All Legal Proceedings Cease Immediately Upon The Appointment Of A Liquidator

If you don’t liquidate, and there are legal proceedings or claims involving the Company, you will be forced to spend money on legal fees.

But, the moment a company is placed into liquidation, there is an automatic stay on civil proceedings that cannot be continue without leave of the Court.

That means, all legal actions and spending stop. Full stop.  

  • Protection From Possible Personal Liability For Insolvent Trading And Unpaid Taxes

By liquidating you can immediately;

  • Avoid further risk of being found to have traded the business and incurring credit while insolvent. If such a finding were made, you could lose your personal assets including your home.
  • Avoid the potential of being held personally liable for certain company taxes by the Australian Taxation Office. We can tell you all about the Director Penalty Regime particularly where directors can avoid personal liability. But as this only applies if you act within a set time frame, you should act quickly.
  • Eliminate any claims you’ve breached your Director duties as set out in the Corporations Act. Again, if such findings were made, you could be held personally liable for certain actions.
  • Bring To An End The Unwinnable Fight That Has Been Fought For Years

So many times our director clients say they wish they liquidated sooner.

They say they often battled on, without advice, and by doing so, they lost their houses and in many cases, far more, such as important relationships, not to mention their health.

If things are not working out, directors should seek professional advice as early as possible to see if there are realistic changes that can be made to improve the situation. 

Then, and only if one is confident of a new plan, where results are monitored and measured on a regular basis, should a person consider putting in their assets, or borrowing from family and friends, into a failing business. 

The best advice is to seek help early and act quickly if results are not achieved.

  • Company Liquidation will assist Employees

If you have been unable to pay your employee’s wages and entitlements, you should know that as soon as a company is placed into liquidation, those eligible employees can claim and recover entitlements under the Fair Entitlements Guarantee Scheme 

If a company is not placed into liquidation, the scheme is not available and you may be left dealing with angry employees.

  • Being Able To Concentrate On Obtaining A Regular Income

What’s the point of being in business if you’re not getting paid? 

And worse, directors have often put in all their money, and borrowed money from family and friends, to put into a failing business.

But as soon as you liquidate, you are expected to go out and earn a regular income, either by finding paid work or starting another, hopefully successful business.

Liquidate early and get on with earning a regular income.

  • Being Able To Improve Health And Personal Relationships

It’s been said before but is worth saying again, the stress of a failing business and constant creditor harassment takes its toll on directors. Close relationships and health often suffers.

Voluntary liquidation immediately ends the stress and stops the phone calls. This will allow you to focus on what’s really important – your health and personal relationships.

  • Get On With Life

The minute you place your company into liquidation is the moment when you hand your burden onto the liquidator. 

You are expected to immediately get on with life and earning an income, tending to your health and personal relationships and leaving the company’s troubles behind you.

Liquidation is not the end of life. It’s often the start of a new and brighter future.

The Insolvency Experts are Registered Liquidators – Licensed and Trusted Insolvency Professionals who will listen and assess your financial situation before letting you know everything you need to know about how Liquidation may affect you and whether it is appropriate for you.

The advice we provide is tailored to your specific circumstances. We will talk you through formal and informal options and discuss what’s best for you. 

Our goal is to provide you with unbiased information to enable you to make a fully informed decision that is best suited for you and your family in what are invariably difficult situations.

Call The Insolvency Experts on 1300 767 525 – Anytime 24/7

Categories
Company Liquidation

Top 8 Beliefs About Liquidation That Are Wrong

There is no doubt, Liquidation and Corporate Insolvency can be complex, but in many cases, it is the best course of action. 

However, many directors facing tough times don’t seek or obtain advice because they are desperately trying to avoid liquidation for all the wrong reasons. Why? Because they believe what their friend or the local experts in the pubs and clubs have to say on the issue.

By failing to get the right advice, a director can mistakenly believe he/she should sell their property or personal possessions to pay the Company’s debts. Or that person may believe liquidation should be avoided at all costs because they think something will happen which in truth will not. 

Before speaking with us, many of our clients believed the wrong thing. But once they were armed with the correct information, they could make an informed decision. One that helped them move forward and improve their lives and those of their families.

So, with that in mind, here are the Top 8 beliefs about Company liquidation that are Wrong!

1. The Tax Office is Paid First.

Incorrect.

The ATO ranks equally along-side all other unsecured creditors in a liquidation setting. The Tax Office does not have a higher priority than other creditors or Directors who have loaned money to a company. 

This means that if there is to be a distribution as a result of the liquidation, the tax office, unsecured creditors and even the Director will shares funds equally as their claims are in the same class.

The only exception to this is in relation to unpaid superannuation which is collected by the Tax Office for the benefit of former employees. These amounts are paid before and in priority to unsecured claims in a liquidation scenario.

2. The Director Will Be Bankrupted and Lose Their Assets

Not Necessarily.

Firstly, liquidation is about winding up the affairs of a Company alone. It does not follow that a Director becomes bankrupt.

In fact, one needs to understand that a Company is a legal structure that actually separates business risk from a Director’s Personal Assets. At law, the Company and the Director are two separate people.

So, if a Company cannot pay its debts, from its own assets, the Directors have no legal obligation to step in and pay those debts with their own personal assets.

Just saying that, the protection afforded to a Director by employing the Company structure can be lost. That is, a Director can be held personally liable for Company debts in a limited number of circumstances that may lead to bankruptcy. These include:

3. The Director Cannot Be A Director Of Another Company in Future

Wrong.

Being a Director of one failed Company does not automatically lead to a Disqualification.

So, even if your Company needs to be liquidated, you can continue to act as a Director of your other companies, or accept directorships in new companies.

However, a Director can be banned from acting in the future in situations where they were an officer of 2 or more failed companies within a 7 year period and those companies failed to return at least 50 cents in the dollar to ordinary unsecured creditors and the conduct of the director is such that ASIC believes disqualification is warranted. Read more about that here.

4. A Director Won’t Be Able To Get Finance In The Future

Not right.

While there is no doubt a Director may feel some impact on their ability to obtain finance, the effect of Liquidation on an individual’s credit rating is not as dramatic or long lasting as it is in personal bankruptcy.

In our experience, banks and finance companies are often prepared to lend even when a company is being liquidated and will do so on the basis of security offered and ability to repay.

Sometimes however, certain institutions will prefer to deal with a Director only when a liquidation is fully completed. In this regard, The Insolvency Experts effectively complete most liquidations very quickly – usually within 4 – 6 months of appointment.

5. The Director Will Lose Assets And Vehicles Under Finance

Not so although it is possible!

If you’ve been a good client and made all payments required by the finance facility, most finance companies are happy to continue receiving payments into the future and leave you with the car or asset.

However, Director’s need to know how a liquidator will deal with leased assets in a liquidation setting.

If a leased asset would generate a positive return for the Company in liquidation, the liquidator has two choices. He may either take and sell the asset or sell any equity in the contract. This will generally be to the Director who is typically the guarantor under the agreement.

With the funds realised on a sale, the liquidator will first payout the finance and the surplus is then deposited into the liquidation account for the benefit of the creditors.

If the director pays for the equity, that amount will be deposited into the liquidation account and the director will then continue paying the finance company and remain as guarantor of the contract.

If however the sale of a leased asset would result in a shortfall, or inadequate funds to payout the finance agreement, the liquidator will walk away from the finance contract.

If this occurs, the finance company will be left to deal with guarantor and may agree to continue payments and possession or repossess the asset. Read more here.

6. A Pre-Insolvency Middleman Is Required

Emphatically No! No! No!

Forewarned is Forearmed.

While the Unregulated, Unqualified persons providing Pre-Insolvency Advice would have you believe their Middle-Man services are needed, you should read what the authorities have to say about such providers. Read more here

And again here for good measure!

The advice from these “Pre-Insolvency Advisors” is often false, unnecessary, misleading or questionable at best, and their promises to control the process or find and control a “friendly” liquidator are usually designed to extract a large fee from a vulnerable director who doesn’t know where else to turn.

Just don’t do it!!

All Directors are entitled to deal in confidence, with all Registered Liquidators directly, and without an intermediary.

Liquidators are qualified and regulated by the Australian Securities and Investments Commission. That regulation and oversight is for the benefit of Directors and the community generally.

Notwithstanding this, if you feel you still need some representation in your dealings with a liquidator, engage a qualified practicing solicitor. Again, qualifications and regulation is what is required here.

7. Liquidation Will Cause Further Creditor Harassment

Nothing could be further from the Truth.

If you don’t do anything, creditors will continue to hassle to get paid. The calls won’t stop but will intensify and will go on for weeks and months.

The purpose of liquidation is to stop the constant barrage of calls and this is done by the liquidator communicating to the creditors on the first day of the winding up process.

What that means is that once creditors are informed of the liquidation, they must deal with the liquidator’s office – and not you. 

Creditors attention is now focused on the liquidator who will explain the failure of the Company. The director is expected to get on with life immediately.

8. Liquidation Will Take A Lot Of My Time

Not at All!

As soon as you place a company into liquidation, you don’t need to do anything other than what the liquidator reasonably requests in terms of assistance.

What this usually involves is handing over the books and records of the Company, providing a straightforward Report on the Company’s Affairs and Property and any answers or information the liquidator may require during the process.

Normally, a Director can expect to deal with the Liquidator’s office about half a dozen times in the period it takes to effectively complete the work of winding up a company.

Liquidation is not the end of life. It’s often the start of a new and brighter future.

The Insolvency Experts are Registered Liquidators – Licensed and Trusted Insolvency Professionals with over 30 years experience. We will listen and assess your financial situation before letting you know everything you need to know about Liquidation and whether it is appropriate for you.

The advice we provide is tailored to your specific circumstances. We will talk you through formal and informal options and discuss what’s best for you. 

Our goal is to provide you with unbiased and correct information to enable you to make a fully informed decision that is best suited for you and your family in what are invariably difficult situations.

Call The Insolvency Experts on 1300 767 525 – Anytime 24/7