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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

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Director Liabilities

PERSONAL LIABILITY FOR GST STARTS 1 APRIL

Like PAYG, non-payment of GST will attract personal liability for Directors under the Director Penalty Regime in 2 ways:

Unavoidable liability

  • Fail to lodge Business Activity Statements (BAS) and Income Activity Statements (IAS) within 3 months of the due date for lodgement.
  • Lock down Director Penalty Notice will attach Personal Liability to a Director immediately and regardless of the appointment of a liquidator, the liability will be unavoidable.

Avoidable liability

  • Lodge BAS and IAS within 3 months of due date for lodgement but not remit payment
  • Personal Liability for Company tax liability will be avoidable if a Director Penalty Notice is acted on within the 21 day period allowed.

This change to the Law passed both houses of Parliament on 17 February 2020 under the Treasury Laws Amendment (Combating Illegal Phoenix) Bill 2020

Other Significant Changes in the Bill

1. Introduction of the Creditor-Defeating Disposition s588FBDB (the Phoenixing Provisions)

  • Enables ASIC, at its discretion, to void phoenix transactions upon request by a Company liquidator, if such a transaction occurred when a company was insolvent and it occurred during the 12 months immediately preceding the date of liquidation.
  • ASIC may then order the return of the property subject of the disposition to the insolvent Company.
  • ASIC may order the person to pay an amount that in ASIC’s opinion, represents some or all of the benefits that person received directly, or indirectly, because of the transaction.
  • In making these types of orders, ASIC must have regard for the conduct of the company and its officers, the circumstances, nature and terms of the disposition, the relationship between the company and the person and any other relevant matter.
  • The Court may set aside the ASIC order if application is made within 60 days of the order issued or if the Court is satisfied the order should not have been made.
  • The new amendments also expand Director and Officers Duties to Prevent Creditor-Defeating Dispositions s.588GAB and also not to procure or encourage such transactions – which appears to be aimed at (un)licensed advisors S588GAC

2. No Backdating of Director Resignations s203AA
Director resignations will take effect

  • If ASIC is notified within 28 days that the person stopped being a director
  • Otherwise, the day written notice is lodged with ASIC.
  • Resignation of a Director has no effect if the Company has no other Directors s203AB. Similarly, if a resolution is passed that leaves a Company without directors, it too is void. S203CA

Do you have any questions about these changes? Feel free to call us on 1300 767 525.

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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

Categories
Company Liquidation Insolvency

What is Voluntary Liquidation?

Under the Corporations Act, a company that is insolvent may be wound up in a number of ways. 

The most common types of liquidation are: 

A Court Liquidation

  • Where an aggrieved creditor applies for a Court Order to have a compulsory liquidation imposed.
  • The creditor or the Court selects the liquidator to wind up the Company under this course of action. 

A Voluntary Liquidation:

  • The company director(s)/shareholder(s) select and appoint a liquidator when this type of liquidation occurs. 

The Purpose of Liquidation

The purpose of company liquidation is to enable the orderly winding up of a company’s affairs and the legal structure itself.

It is also a way in which the directors of a company are relieved of the stress of constant creditor calls.

What’s required of Directors?

Regardless of how it is commenced, the liquidation process itself is virtually identical and requires the liquidator to undertake a detailed forensic examination of the company, its transactions and the conduct of its directors and officers.

The moment appointed, a liquidator becomes the proper officer and will take control of the company and its assets for various purposes including distributing what remains.  At the same time, the directors powers are suspended.

As a director, you will be required to submit a Report on the Company’s Affairs and Property (ROCAP) – a document that describes the financial position of the insolvent company at the date of liquidation.

You will also be required, under the Corporations Act, to provide the books and records of the Company to the liquidator and to provide reasonable assistance, as may be required from time to time, by the liquidator in respect of his investigations.

How long does Liquidation take?

The Insolvency Experts can have your company placed into liquidation in as little as 24 hours.

While there is no set time limit for completion of a winding up process, we try and complete the process in as little as 4-6 months, where there are no major issues. The reason why the process takes this time is that liquidators are required to report to various government departments and then await the clearance of various steps to be able to move through to completion.

Sometimes however, a liquidation may take substantially longer but this depends on the complexity of the company and the issues involves including pursuing any legal claims that may exist.

Get expert advice 24/7 – Call The Insolvency Experts on 1300 767 525

In selecting a Liquidator, a director should ask any question whatsoever and be satisfied they understand the process of liquidation before commencing. 

The Insolvency Experts are Registered Liquidators who are forthright, sensible and commercial and who are able to provide real and practical advice on the process of liquidation. 

Is company liquidation the best step for you?

Before you place your company into liquidation you need to know :

  • whether company liquidation is the best step for your company and yourself personally and financially.
  • if there are other alternatives that are better for you and your family
  • what risks exist

As every case is different, we encourage you to call, 24 hours – on 1300 767 525 so that we can provide tailored advice to your specific circumstances.

The Process of Selecting a Liquidator yourself:

  • Only speak with a Registered Liquidator such as The Insolvency Experts (Registered Liquidator 296215) to ensure liquidation is appropriate for your company’s circumstances.

You can speak with us FREE of charge and obligation, 24 hours a day, everyday, on 1300 767 525.

Once the decision to liquidate has been made, and a Fixed Director Contribution toward the cost of the winding up agreed, we will prepare and send by email, all the documents needed to place the company into liquidation. 

These documents include:

  1. Minutes of a Meeting of Directors – the directors resolve the company is insolvent and call a meeting of the shareholders who will consider the insolvency and the appointment of a liquidator.
  2. Consent to Short Notice – normally it takes 21 days to call the meeting of shareholders however this period may be waived if 95% of shareholders sign a Consent to Short Notice. This enables the shareholders to meet immediately.
  3. Meeting of Shareholders – the shareholders resolve to appoint a Liquidator of their choosing.
  4. Various forms for lodgement with ASIC that are required to advise and formalise the appointment.

Once the company is in placed into Liquidation, the Liquidator will immediately write to all known creditors and advise them of the appointment and the need to deal only with the liquidator rather than continuing to pursue the Company director. Most directors find this immediately reduced the stress of the situation.

Initial Information to Creditors, includes:

  • A short report on the financial position of company.
  • A Notice of any Meeting of Creditors that has been called.
  • A Summary of Affairs – effectively a balance sheet position of the company at the date of liquidation 
  • A listing of all creditors names, addresses and amounts owed
  • Various ASIC information sheets – such as guides to the liquidation process, creditors rights, as well as details of the calculation and amount of the Liquidator’s remuneration.

The Insolvency Experts – 24 hours, 7 day – 1300 767 525

Categories
Company Liquidation

Can you be a Director after Company Liquidation

Yes – but there are rules in corporate insolvency and the ability to be a director in the future.

The rules are explained below but for now, all directors need to understand the Court and ASIC can disqualify a director of a company that enters external administration.

Briefly, whether in voluntary liquidation or compulsory liquidation, as long as a director is not bankrupt, convicted of an indictable offence or subject to a director banning order and disqualified from acting as a director, you are entitled to be a Director of another company immediately after liquidation.

What are the rules if you are disqualified as a Director?

A person who is disqualified from managing corporations will commit an offence under Section 206A of the Corporations Act if:

  • They make, or participate in making, decisions that affect the whole of the business of a corporation.
  • They exercise the capacity to affect a corporation’s financial standing; or
  • They communicate instructions or wishes to the directors of the corporation
    • Knowing that the directors are accustomed to acting in accordance with their instructions; or
    • Intending that the directors will act in accordance with those instructions.

How does a person become disqualified to act as a Director?

A person becomes disqualified from managing corporation 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.

Court Ordered Disqualification

Under Section 206C of the Corporations Act, on application by ASIC, the Court may disqualify a person from managing corporations for a period the Court consider appropriate if the Court is satisfied the disqualification is justified. 

In determining whether the disqualification is justified, the Court will have regard to:

  • A person’s conduct in relation to the management of any corporation; and
  • Any other matters the Court considers appropriate.

Under Section 206D and Section 206E of the Corporations Act, on application by ASIC, the Court may disqualify a person from managing corporations for up to 10 years if:

  • Within the last 7 years, the person has been an officer of 2 or more corporations when they have failed; and
  • The Court is satisfied that the manner in which the corporation was managed was wholly or partly responsible for the corporation failing and that disqualification is justified; and
  • On at least 2 occasions, the person has failed to take reasonable steps to prevent the contravention of the Act; and
  • The person has done something that would have contravened a persons directors duties owed to the Company under Section 180(1) & 181 of the Corporations Act – to exercise powers with care and diligence and good faith.

ASIC Ordered Disqualification

Under Section 206F of the Corporations Act the ASIC itself, without Court intervention, may disqualify a person from managing corporations for up to 5 years if:

  • Within the last 7 years before ASIC gives notice, the person has been an officer of 2 or more corporations when they have failed; and
  • While the person was acting as a director or an officer, or within 12 months after the person ceased to be an officer, each of the corporations was wound up and the registered liquidator lodged a report with ASIC regarding its inability to pay its debts

Before disqualification, ASIC must issue a notice to a person requiring them to: 

  • show cause or demonstrate why they should not be disqualified; and
  • The person is to have an opportunity to be heard on the question

ASIC must determine whether the disqualification is justified and it will consider:

  • Whether any of the corporations were related to one another
  • The person’s conduct in relation to the management of the corporations – such as not preventing insolvent trading
  • Whether the disqualification would be in the public interest
  • Any other matters that ASIC considers appropriate.

Free Professional Advice 24 Hours/7 Days – The Insolvency Experts

1300 767 525

Categories
Insolvency

How is Insolvency Calculated

When a company is experiencing financial difficulties and is later placed into liquidation, the appointed liquidator must undertake a detailed forensic investigation into the affairs of the Company and the conduct of its officers to explain the reasons for the Company’s failure.

This will include a determination as to whether the Company was allowed to continue to trade while insolvent.

Company Directors will often ask how does a liquidator prove insolvent trading – and what does the liquidator look for when performing this role.

What is Solvency?

One should understand the definition of solvency is set out in section 95A of the Corporations Act. It states;

  • A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.

What is insolvent trading?

Insolvent trading occurs when a Company Director allows their company to trade and incur debts when it is insolvent and unable to pay those debts as and when they fall due for payment.

What Sections of the Corporations Act deal with Insolvent Trading?

Section 588G of the Corporations Act 2001 (Cth) states a Director has a positive duty to prevent insolvent trading by a company and that the section will apply if:

  • A person is a director of a company at the time when it incurs a debt;
  • The company is insolvent at the time, or becomes insolvent by incurring that debt;
  • At the time, there are reasonable grounds for suspecting the company is insolvent or would become insolvent

A person contravenes the section if:

  • They are aware at the time there are such grounds for suspecting insolvency
  • A reasonable person in a like position in a company in the company’s circumstances would be so aware.

Section 588M provides for recovery of compensation for loss resulting from insolvent trading from a director personally for a breach of this duty.

Insolvent Trading – penalties apply

If a director allows a new debt to be incurred knowing the company is insolvent and unable to pay those debts, the director may be guilty of insolvent trading and may become personally liable for the repayment of debts to the company or its individual creditors.

  1. A liquidator or an individual creditor may commence legal proceedings for an order that a director pay compensation for the damages incurred by the company or an individual creditor.
  2. A director may be disqualified from acting as a director if they are found guilty of insolvent trading.
  3. Further, fines of up to $200,000 may be applied as well as a gaol term for up to 5 years.

To determine whether a Company was solvent or insolvent and unable to pay its debts as and when debts fell due for payment, a liquidator will collect and examine the books of the company.

The liquidator will look for evidence of insolvency such as;

  • suppliers stopping credit and placing the company on COD.
  • suppliers demanding payment of the outstanding debt before resuming supply
  • whether at the time the company was generating ongoing and unsustainable losses
  • the company has poor cash flow and does not have sufficient funds to meet its short term needs
  • the company has exceeded its overdraft limit
  • the company is unable to obtain or access further credit or finance
  • creditors are demanding payment and threatening to commence legal recovery action
  • creditors are not being paid or are paid well outside of usual terms
  • debt continues to increase
  • unable to pay statutory obligations such as debts to the Australian Taxation Office for overdue taxes
  • asset being sold to fund trading
  • high staff turnover
  • incomplete books and Financial Records
  • essential maintenance of assets being postponed or ignored
  • issuing post-dated cheques and dishonoured cheques

If you are worried that your company may be showing signs of insolvency, contact The Insolvency Experts.

Call 1300 767 525

Directors have a positive duty to avoid insolvent trading

Directors must:

  1. stay constantly aware of the financial affairs and position of the company.
  2. prepare the books of the company and review its financial information regularly in order to determine whether the company can repay its debts as and when they fall due for payment.
  3. take positive steps to confirm the position of the company and realistically assess the available options if there is a question as to solvency.
  4. seek advice from a suitably qualified person if solvency is an issue
  5. act appropriately and in a timely manner to address any solvency issue

Are there defences to a claim for Insolvent Trading

A director being pursued for an insolvent trading may claim;

  1. There were reasonable grounds to expect the company was solvent at the time the debt was incurred
  2. The director relied on information produced by a competent and qualified person that lead to the view the company was solvent
  3. The director, was not involved in the management of the company for good reason, at the relevant time
  4. The director took all reasonable steps to stop the company from incurring the debt

Often these defences are difficult to access.

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

Categories
Company Liquidation

How much does it cost to liquidate a company in Australia

The most commonly asked question by Company directors and business owners considering company liquidation is “what is the cost of the liquidation process?”

Well – that really depends on how the Company is wound up.

An insolvent Company may be wound up in two ways.

  • First, a company’s shareholders can agree to select and appoint a liquidator of their choosing; Or
  • Unpaid creditors may apply to Court to wind up the Company.

Either way, when a Company is insolvent and unable to pay its debts, a registered liquidator is required to act as External Administrator for the purpose of the winding up.

Voluntary Liquidation – The Shareholders’ choice

An insolvent company may be voluntarily placed into liquidation by a resolution passed by a 75% majority of the shareholders.

Where shareholders agree to appoint a liquidator, the process is known as a Creditors Voluntary Liquidation.

This method of liquidation;

  • is paid for by the sale of all Company assets, if any remain; or
  • if no assets remain, the directors/shareholders may agree to pay a fixed contribution towards the cost of the liquidation process.

So, if there are assets remaining within a Company, and those assets are enough to cover the costs of a liquidation, a director does not have to contribute a cent to the winding up process.

However, if there are no assets remaining in a Company, a registered liquidator will need to agree a fair director contribution towards the costs and expenses of performing the liquidation. The agreed amount will depend on a number of factors including the situation of the Company,  the number of creditors and the complexity of issues expected to name but a few.

Each case is assessed individually but obviously, the more creditors and issues there are, the more professional time will be spent and a higher contribution required by the director/shareholder.

As a guide only, an insolvent Company liquidation with a limited number of creditors and no obvious complexities may require a fixed director contribution from as little as $5,500 – $9,000.

However, as with any professional service, each matter must be individually assessed and we encourage you to call us anytime on 1300 767 525 for a free quote specific to your circumstances.

Official Liquidation – The Creditors’ choice.

An insolvent company may be wound up on the petition of an unpaid creditor to the Court.

This process is paid for by the aggrieved creditor and is likely to cost them anywhere from $7,000 to $9,000 in legal and court filing fees alone.

In this case, the creditor selects the Liquidator and is required to obtain a Consent to Act signed by a registered liquidator.  The Court will then appoint that liquidator. This type of liquidation is known as an Official Liquidation.

Creditors of an insolvent company may also elect to appoint a liquidator at the end of the Voluntary Administration process.

However a liquidation is commenced, whether by the members or the creditors, the liquidation process is virtually identical and requires the liquidator undertake a detailed examination of the company and the circumstances and reasons leading to its winding up.

Once these investigations are completed, the liquidator must report all findings to ASIC and the creditors under the Corporations Act.

Free Help is Available Now – Call 1300 767 525

Here are some signs that your company may be insolvent;

  • Suppliers placing the company on COD or demanding payment before resuming supply
  • Ongoing unsustainable losses
  • Poor cash flow
  • Exceeding overdraft limits
  • unable to obtain further credit
  • Stop supply from suppliers
  • Creditor demands and threatened legal action
  • Creditors unpaid and outside of usual terms
  • Increasing debt — (liabilities greater than assets – Liquidity ratio below 1)
  • Unrecoverable loans to associated parties
  • ATO demands from overdue taxes
  • Asset sales to fund trading
  • Falling Stock levels
  • High staff turnover
  • Incomplete Financial Records
  • Postponement of essential maintenance
  • No access to alternate finance or ability to raise equity
  • Issuing Post-dated cheques and dishonoured cheques

Insolvency Indicators Highlight Potential Problems

If you are experience any of the above, you should consider taking action or seeking advice as soon as possible. Always seek advice early.

If you are worried and you want to know what your options are, contact The Insolvency Experts.

24 hours/7 days on 1300 767 525