Liquidation or Administration

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Liquidation

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 a company that is insolvent 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. There is a fiduciary duty upon a director to take action in these circumstances which may result in punishable offences if you fail to do so.

A director may be held personally liable to compensate creditors for the amount of the unpaid debts, be subject to hefty fines or exposed to gaol time for failing to respond to insolvency.

Do not wait until it's too late.

Types of Liquidation

The three most common types of corporate liquidations are:

Court Liquidation

The appointment of a Court Liquidator is a forced measure, usually initiated by an aggrieved creditor and most often because a company is insolvent.

Creditors Voluntary Liquidation

The Creditors Voluntary Liquidation process is a fast, effective means by which directors of an insolvent company can comply with their statutory duties regarding insolvent trading and quickly mitigate further losses to themselves and creditors.

Members Voluntary Liquidation

A Members Voluntary Liquidation is a process that facilitates the winding up of a solvent company and distribution of its assets to shareholders. A MVL may be used in situations where a company has sold its business and is no longer trading or required to trade.

The Process

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

Initial Meeting or Discussion

At first contact, our principals will take the time needed, whether over the phone or face to face (obligation and cost free) to assess your individual circumstances. This is known as the assessment phase.

Execution of Appointment Documents

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

The Liquidator, along side Our Team, will investigate the company's affairs and report to creditors regarding same. Depending on the scale and size of the company, this can be relatively short or quite long winded process.

Realisation and Distribution of Funds

Once investigations are complete and all available assets are realised, any funds recovered are distributed to creditors and the company is de-registered with the Australian Securities and Investments Commission.

Frequently Asked Questions

What is trading whilst insolvent?

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.

Will employees receive payment for their entitlements if the company is placed into liquidation?

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.

How will I know if my company is in financial difficulty?

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.

What are the consequences of trading whilst insolvent?

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.

If a company is in liquidation, what are the director's responsibilities?

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

If my company goes into liquidation, I will go bankrupt too

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