Why Shaw Gidley

If, as a director, you believe your company is in financial trouble, seek professional accounting and legal advice as soon as you can.

It is imperative under Australian Legislation that a director of an insolvent company, or likely to become insolvent in the foreseeable future, acts responsibly. Australian Corporate Legislation specifically states that a director must not trade a company whilst insolvent, and there is a fiduciary duty upon a director to take action in these circumstances, potentially result in punishable offence if there’s failure to do so.  

We are here to support you away from any risks to personal liability to not compensate creditors for unpaid debt, avoiding fines or even jail time. 

Do not wait until it's too late, we’re here to be the expert advice you need to turn it around.

Process of Liquidation

There are three main types of liquidation: Court Liquidation (forced measure initiated by an aggrieved creditor), Creditors Voluntary Liquidation (fast and effective allowing directors to comply with their statutory duties and quickly mitigate further losses), and Member Voluntary Liquidation (distributing a solvent company’s assets to shareholders when they have sold and no longer trading). 

For CVL and CLs, the process remains mostly the same when it comes to winding up a company, outlined below. MVLs are primarily designed to return assets to shareholders and take advantage of any tax benefits that may be available.

Initial Meeting or Discussion

Initial Meeting or Discussion

Our principals make an obligation- and cost-free assessment of your individual circumstances, known as the assessment phase.

Execution of Appointment Documents

Execution of Appointment Documents

At first contact, we will prepare the necessary documents required to formalise our appointment and once executed, will commence our appointment as Liquidator of the company.

Investigation and Reporting

Investigation and Reporting

The Liquidator and our team investigate the company’s affairs and report to creditors. Depending on the company, this can be a long or short process.

Realisation and Distribution of Funds

Realisation and Distribution of Funds

Once investigations are complete and all available assets are realised, funds are distributed to creditors and the company is deregistered with the Australian Securities and Investments Commission.

Frequently Asked Questions

Insolvent trading occurs when a director allows a business to incur debts even though they are aware the business is unable to pay them as and when they fall due, rendering the business insolvent. 

It is important to note that the duty to prevent insolvent trading also applies to any person acting in the position of director, even if they are not formally or validly appointed as a director.

The Deed of Company Arrangement process or DOCA as it is often referred to, is a means to salvage and restructure an insolvent or near insolvent company and provide creditors with a better outcome than they would experience if the company was to directly enter liquidation. 

A Deed of Company Arrangement must follow a Voluntary Administration and is proposed by the Directors during the Voluntary Administration period. The Administrator investigates the proposed Deed of Company Arrangement and makes a recommendation about whether company creditors should accept or reject the proposal. As a rule of thumb the Deed of Company Arrangement needs to offer creditors a better outcome than if the company was liquidated.

There are a number of commercial considerations that need to be taken into account when drafting a Deed of Company Arrangement. It is not just a simple case of a company seeking to compromise debts with creditors. Often the company will need to make significant changes to the way it does business if the Deed of Company Arrangement  is to have any chance of succeeding. In addition, the company and its directors will need to have some goodwill left with a majority of its creditors, as it is the creditors that will ultimately decide the company’s future, so acting early is vital.

This type of administration was introduced to encourage directors of insolvent companies to take early action and is a mechanism for companies facing financial distress to obtain a “breathing space”. It also provides directors with protection from personally guaranteed corporate debts during the period of the Voluntary Administration period.

During the Voluntary Administration process, there is a moratorium period of approximately 5 weeks (six weeks at Christmas and Easter) in which creditors, subject to a number of exceptions, are prohibited from taking any action against the company to recover debts, enforce charges or have the company wound up without the consent of the either the Administrator or the Court.

The Administrator will convene two meetings of creditors during the administration:

  • The first meeting will be held within 8 business days of the Administrator’s appointment at which creditors may vote to replace the Administrator and/or appoint a Committee of Creditors; and
  •  The second meeting of creditors will be held within 25 or 30 business days after the  Administrator’s appointment at which creditors may vote to decide the Company’s future.

The Administrator’s role is to take control of the affairs of the business, investigate the financial affairs of the company, report the findings and recommend to creditors one of the following three courses of action:

  1. That the administration cease (and control of the company be returned to the directors);
  2. That the company enter into a Deed of Company Arrangement; or
  3. That the company be wound up in insolvency.

There are a number of common factors that can indicate that your company is in financial distress. Being unable to pay critical creditors, staff superannuation and the Australian Taxation Office are the most common. Below are some of the signs the Australian Securities and Investments Commission states can indicate your company is undergoing financial difficulty:

  • Ongoing losses
  • Poor cash flow
  • Lack of cash-flow forecasts and other budgets
  • Creditors unpaid outside usual terms
  • Solicitor's letters, demands, summonses, judgments or warrants issued against your company
  • Suppliers placing your company on cash-on-delivery (COD) terms
  • Overdraft limit reached or defaults on loan or interest payments, or
  • Overdue taxes and superannuation liabilities.

A director may be held personally liable to compensate creditors for the amount of the unpaid debts incurred from the time the business became insolvent to the start of the liquidation. 

In 2015, the Australian Securities and Investments Commission focused on insolvent trading by directors, noting that the following penalties can apply in certain circumstances:

  • Civil penalties: these can apply for contravening the insolvent trading provisions of the Corporations Act 2001, which can include pecuniary penalties of up to $200,000
  • Criminal charges: if dishonesty is found to be a factor in insolvent trading, a director may also be subject to criminal charges, which can include a fine of up to $220,000 or imprisonment for up to five years, or both.


The Corporations Act 2001 provides some statutory defences for directors, however, directors may find it difficult to rely upon these if they have not taken steps to keep themselves informed about the company's financial position.

Eligible employees are entitled to claim under the Federal Government Scheme known as the Fair Entitlement Guarantee Scheme (FEGS), which provides for various employee entitlements upon the insolvency of a business, however, it should be noted that FEGS does not cover outstanding superannuation.

As a director of a company in liquidation, you no longer have the ability to act on behalf of the company in any capacity, however, you do have the legal obligation to assist the liquidator when requested to do so. Some of the obligations of a director include:

  • Providing the company's books and records
  • Advising the location of the company's books and records if they are not in their possession
  • Advising the Liquidator of the location of the company's assets and assisting with their realisation if requested to do so, and
  • Providing the Liquidator with a Report on Company Affairs and Property

Not necessarily. Many company directors fear that if their company goes into liquidation, they will also be made bankrupt. Unless guaranteed, the personal financial affairs of the director are separate from those of their company.

Testimonial

Our firm has worked closely with Shaw Gidley Insolvency and Construction. The team at Shaw Gidley are specialist insolvency practitioners and make the confusing process of insolvency easy to understand. The experienced team are honest, professional and are keenly aware of the interests of the relevant stakeholders. Our firm would recommend Shaw Gidley Insolvency and Construction to anyone looking for accurate insolvency advice and practical solutions that you can trust.

Anonymous

Butler Business and Law

Testimonial

In my business relationship with Shaw Gidley, I have always found them to act in their clients best interests and with utmost integrity.....They take the time to evaluate each individual circumstance and get the best result for their clients. Shaw Gidley, through open communication, take the fear and apprehension out of insolvency.

Ben

Bidwell Hospitality

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