Company Liquidation

When you are considering liquidating a company, you need an expert to provide all relevant information as simply as possible to enable you to make a fully informed decision about your financial future.

As qualified Corporate and Personal insolvency Experts, we make ourselves available 24 hours a day, everyday to help you understand the complexities of very difficult business situations, insolvency and the potential impact of both upon you personally.

Speed & Simplicity

We understand the immense stress that a difficult financial situation can cause and we know these difficulties will often lead to severe stress, illness and even family breakdown.

With that in mind, The Insolvency Experts have developed internal processes that are second to none that enable a company to be placed into liquidation quickly and with a minimum of fuss or hassle. In fact, it is possible to place a company into liquidation today if required and with only moderate input from yourself.

Cost effective, inexpensive liquidations

Further to the above, it is those same streamlined processes that simplify the liquidation process that also ensure The Insolvency Experts provide the most cost effective and inexpensive liquidation services across Australia.

No Cost to You Liquidation

The fact is that sometimes a company will need to be liquidated.

When a Liquidator is required, you and your fellow shareholders will want to know the cost is as low as possible (and preferably paid by someone else).

Liquidators are paid from the assets of a company rather than the directors personally so in circumstances where the realizable assets of the company are sufficient to meet the costs of the winding up process, the liquidation will be performed at no cost to you personally*.

If this is the case, once the initial liquidation package is completed and signed, we can immediately begin the liquidation process, sell only the assets of the company (not the directors or shareholders personal assets) and use the proceeds to meet remuneration approved by creditors.

Minimal Cost for Companies without Assets

Sometimes a company is without realizable assets and cannot afford to appoint a liquidator itself BUT there may be compelling reasons for the director to want to pay to place a company into liquidation.

One reason may be to relieve the incredible stress associated with creditors chasing you. Appointing a liquidator immediately deflects interest to the liquidator and away from you! No longer do you need to deal with creditor calls.

Equally as terrifying is the prospect of personal liability and loss of personal assets that may follow the a Director Penalty Notice issued by the ATO for unpaid tax – and we all know how active their collection activities have been in recent times.

Benefit to you

In these situations and others it is absolutely in your best interest to appoint a Liquidator as soon as possible and this can be done from as little as $6,000 ^

Every insolvency situation differs in its complexity so call us to discuss the impact and benefits to you – 24 hours a day.

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What is Liquidation?

Liquidation is a process by which the affairs of a company are brought to an orderly end, with the assets and property of the company distributed in a fair and lawful manner to creditors.

The process occurs because the company is insolvent and can’t meet all of its debts, or its members want the affairs of the company to be brought to an end.
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Why place a company into liquidation?

There are a many reasons why directors place a company into Liquidation. These reasons include;

• The company is insolvent and is unable to pay all of its debts.
• The directors wish to avoid the potential of trading whilst insolvent.
• A company’s affairs will not be fully wound up without having independent and qualified Liquidators to undertake the process.
• Liquidation protects creditors’, directors’ and members’ interests while the company structure is dismantled.
• Allowing a company to simply be struck off ASIC’s corporate register provides no certainty that creditors will not re-register a company and pursue the director in the future.
• The director of the company may have been served an ATO Directors’ Penalty Notice. If this notice is allowed to expire without appropriate steps being taken, a director may become personally liable for the company’s tax debt.
• The company serves no purpose in going forward.
• A group may need restructuring or reorganization.
• To avoid possible criminal liability – stop trading before problems.
• To bring to an end the overwhelming stress of continuing to trade

 

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What is the purpose of a liquidation?

A liquidation may be necessary for a company that is insolvent. If your company is insolvent it is your responsibility to take positive steps to prevent insolvent trading and to place your company into liquidation as soon as it is possible.

If your company is insolvent and you fail to prevent your company from incurring debts by placing it into administration or liquidation you may become personally liable for the debts which your company has incurred.

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Who appoints a liquidator to an insolvent company?

A company can be wound up by resolution of its members or creditors (in a Voluntary Administration), or by the Court upon the application of one or more creditors.

• If a company is wound up by the Court the applicant must prove the company is insolvent. The Court then appoints Liquidators who are usually nominated by the creditor. The Court may also place a company into liquidation when a dispute between shareholders or members is unable to be resolved by any other means.
• If a company is wound up as a voluntary liquidation the members select the liquidators however in the case of a Creditors Voluntary Liquidation, creditors may nominate alternate liquidators (although this occurs rarely).
• Liquidators can also be appointed at the conclusions of the Voluntary Administration process by the creditors of a company. The initial appointment of the Voluntary Administrator is usually made by the directors of the company.
• The liquidation process is almost identical regardless of how it is commenced.

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What is the effect of liquidation on a company?

Upon appointment, liquidators take control of all assets of a company, including the business if it is still trading.

Liquidators have full authority to conduct and sell any business in the name of the company.

Ultimately, the liquidator will dispose of the company’s assets and look to distribute the proceeds of the sale to proven creditors.

Conversely, upon appointment of Liquidators, any power formely held by director(s) is relinquished in favour of the Liquidators.

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Does liquidation effect secured creditors rights?

No.

The rights of secured creditors are not affected by the liquidation and they able to recover the assets being the subject of their charge. The secured creditor may prove in the liquidation for any shortfall after their security has been realized.

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What is the effect of liquidation on unsecured creditors?

Upon the appointment of liquidators, all legal actions against the company are stayed and cannot be re-instituted without leave of the court.

Creditors lose their individual rights to recover debts directly from the insolvent company, but are able to prove their debts and share in any distribution made by the liquidators.

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Can a company trade while in liquidation?

 

Liquidators may decide to trade a business if they believe it would be in the best interests of all creditors to do so.

Liquidators would usually do this if they assess that the business is able to be sold as a going concern and that such a course of action will result in a better return for creditors of the insovent company.

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What are my obligations to the liquidator?

If you place your company into liquidation by way of a Creditors’ Voluntary Liquidation you must submit a Report as to Affairs which must contain all financial information about the insolvent company’s affairs.

You are also required by the Corporations Act to fully co-operate with the liquidators and provide any reasonable assistance which the liquidators may require from time to time. The liquidators will also require the books and records of the company be delivered to his office.

For this reason it is important that you select liquidators who you believe will be able to work with you and who are available to discuss any matter in a professional manner throughout the conduct of the liquidation.

Insolvency Experts — the Sydney liquidators that offer practical advice.

Liquidation Direct are located in Sydney and offer liquidation services Australia wide. If you are seeking Sydney liquidators or liquidators in Australia with expert advice and a wealth of experience, contact us at our Sydney offices today.

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What is the role of the liquidator?

A liquidation is carried out by Registered Liquidators to ensure that all parties are treated fairly and as prescribed by the Corporations Act.

Liquidators must be independent as they have a duty to act impartially for the benefit of all creditors.

Liquidators have a number of duties, and below are some examples (these are not exhaustive):

• To protect and realise the assets of the insolvent company
• To investigate the affairs of the insolvent company and report any wrong doings such as potential claims for preferential payments, insolvent trading or any other breaches of the Corporations Act to the Australian Securities and Investments Commission (“ASIC”).
• Establish the reason for the insolvent company’s failure and to report the findings to ASIC
• To distribute any surplus funds to the employees (after the costs and expenses of the liquidation have been paid) and then unsecured creditors.
• After the affairs of the insolvent company have been fully dealt with and ASIC has provided the liquidators with a clearance the liquidators must hold a final liquidation meeting of members and creditors.

 

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Do I have to attend the liquidation meeting?

If you place your company into liquidation by way of a Creditors Voluntary liquidation and you are a director, then you must attend the first liquidation meeting of creditors.

If you place your company into Voluntary Administration and the company later goes into liquidation then you do not have to attend any meetings of creditors.

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Will the company liquidation affect my personal credit rating?

Credit reporting agencies will record a company Liquidation against your personal credit file.

If your company is insolvent it is important that you can demonstrate that you acted in an appropriate manner and complied with corporate laws.

With a Creditors’ Voluntary Liquidation you may be able to better explain the circumstances in which the company was placed into liquidation.

If you do not take steps to wind up an insolvent company voluntarily, a creditor may take control of the process and have a court liquidator appointed.

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How long does business liquidation take to complete?

Business liquidation is a complex process and as such there is no set time limit for completion. A liquidation may last from 6 months to many years depending upon the complexity of the issues and the nature of the business involved. In most circumstances, the liquidator will usually try to finalise the liquidation within 12 months. For more information on business liquidation, feel free to contact us on our 24hour hotline, 7 days a week.

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What investigations will the liquidator undertake?

Liquidators must conduct a minimum investigation whether or not there are funds in the liquidation.

Liquidators must then report the findings of the investigations to the Australian Securities and Investments Commission pursuant to Section 533 of the Corporations Act.

Some of the issues this report will cover include:

• The history of the insolvent company and the reasons for its failure.
• The claims of employees, secured and ordinary creditors and the nature of the debts involved.
• Whether there have been instances of insolvent trading.
• Whether there are any preferential payments to creditors that may be recovered.
• Whether there are any offences that may have been committed by the officers of the insolvent company.
• Whether the directors have previously been involved in a Liquidation

Liquidators may, if the circumstances of the investigation warrant such action, publicly examine directors and other people in court, search and seize assets, company records, gain access to a property.

Additionally, where a company is in Liquidation, and the Liquidators feel the siutation requires the intervention of the ASIC, lodge a Prosecution request or for specific funding to undertake further investigations into the affairs of the insolvent company.

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Director Banning Orders

The ASIC may disqualify a person from acting as a director or being involved in the management of a company.

Director Banning Orders
Section 206F of the Act broadly states that;

ASIC may disqualify a person from managing corporations for up to 5 years if within 7 years they have been an officer of 2 or more corporations that have been wound up in insolvency and those companies have been unable to return at least 50 cents in the dollar to the ordinary unsercured creditors.

In determining whether a disqualification is justified, ASIC must have regard as to whether the 2 or more failed corporations were related to one another and also the persons conduct, and whether the disqualification is in the public interest and any other appropriate matters.

ASIC can apply for orders disqualifying a person from managing corporations for up to 20 years if they have been an officer of two or more companies that have failed within the last 7 years, and the way in which the companies were managed contributed to the failures.

Section 206D of the Act broadly states that the Court may disqualify a person from managing corporations for up to 10 years if within 7 years they have been an officer of 2 or more corporations that have been wound up and that the person has been wholly or partly responsible for the insolvency of the corporations.

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How do you determine the company is insolvent?

The definition of insolvency is that a company is insolvent if it can’t pay all of its debts as and when they fall due.

This may be the case even where a company has a surplus of assets to liabilities but the company may not have the ability to realize the value of those assets within 12 months.

A company may also be deemed to be insolvent if it fails to do things as prescribed at law. Usually, a company will be deemed insolvent for failing to satisfy a 459E Statutory Demand. A company may also be deemed insolvent for failing to maintain books and records of account.

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In what order will creditors be paid?

Who gets paid and in what order
Liquidators are obliged to pay creditors is a strict order as set out in the Corporations Act.

Liquidators’ costs and expenses must be paid as a priority cost of the liquidation. After liquidation expenses have been paid, any outstanding employee entitlements must then be paid. If then there are sufficient funds on hand in the liquidation, ordinary unsecured creditor claims are paid.

If the company in liquidation does not have sufficient funds to pay unsecured creditor claims in full, then ordinary unsecured creditor claims are paid on a pro-rated basis.

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Will the employees be paid?

The Commonwealth Government provides the General Employee Entitlements Redundancy Scheme (GEERS).

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

GEERS will pay out claims (limits apply) for the following entitlements:

• Unpaid wages
• Unpaid annul leave
• Redundancy

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

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Will any payments made before liquidation be attacked by the liquidator?

It is the role of a liquidator to thoroughly review the records of the company and will usually review payments made within 6 months of the company being wound up. If a payment is considered preferential or uncommercial it may be recovered by the liquidator in certain circumstances.

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How does a liquidation end?

It is important to note that before the liquidator can finalise the winding up, he will seek the approval of the Australian Securities and Investments Commission to do so. Once provided, the liquidation will then end when:

• (a) the company is dissolved by Court Order on the application of the liquidator;
• (b) the company is struck off the register of companies by the ASIC; or
• (c) the winding up is set aside or stayed by the Court.

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What is a Registered liquidator?

Liquidators are qualified insolvency specialists who assist company directors with business debt concerns.

All liquidators in Australia must be registered with the Australian Securities and Investments Commission (ASIC). ASIC regulates all liquidators and they are required to file many documents with ASIC in all liquidations. Liquidators are also required to file a statement with ASIC every 3 years on all liquidations they have accepted.

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What is an Official Liquidator?

Official Liquidators are qualified insolvency specialists. Official Liquidators can only be appointed to liquidate a company by a Court.

Like Registered Liquidators, Official Liquidators are also registered with the Australian Securities and Investments Commission (ASIC), however, Official Liquidators have a different class of registration with ASIC. Registered Liquidators must specifically apply and provide the necessary undertakings to ASIC to become registered as an Official Liquidator.

ASIC regulates all liquidators (both Registered and Official Liquidators) and they are required to file many documents with ASIC in all liquidations. Liquidators are also required to file a statement with ASIC every 3 years on all liquidations they have accepted.

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What is a Provisional Liquidator?

Like Official Liquidators, Provisional Liquidators can only be appointed by a Court. The only difference between Official Liquidators and Provisional Liquidators is that Provisional Liquidators can only wind up a company on a provisional basis (ie a Provisional Liquidation).

Provisional Liquidators hold the same registration status as Official Liquidators with the Australian Securities and Investments Commission (ASIC).

ASIC regulates all liquidators (both Registered Liquidators and Official Liquidators) and they are required to file many documents with ASIC in all liquidations. Liquidators are also required to file a statement with ASIC every 3 years on all liquidations they have accepted.

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When can you become personally liable for a business debt?

The purpose of having a company is to separate liability from the company and its directors.

However, in certain circumstances a company director can personally become liable for a business debt, if the director has done one of the following:

• signed a personal guarantee to secure payment of a business debt;
• incurred a debt knowing the company was insolvent; or
• failed to comply with a Directors’ Penalty Notice issued by the Tax Office demand within time.

If a company director has become personally liable for a business debt and cannot pay that debt, the director may need to consider personal bankruptcy.

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What is business debt?

A business debt is normally known as a debt which has been incurred by a company.

A debt can be incurred on behalf of a company by its directors or by its employees.

A company can only be liable for a business debt if the debt was authorised by the person who had authority to incur the debt on behalf of the company.

An individual (normally a company director) can only be liable for a business debt if the individual signed a personal guarantee, incurred the debt knowing the company was insolvent and was unable to pay for the debt or failed to comply with a Directors’ Penalty Notice issued by the Tax Office.

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What is the Process of a Creditors Voluntary Liquidation?

A Creditors’ Voluntary Liquidation is for insolvent companies and despite its name is actually instigated by the directors and shareholders of the company who select a liquidator.

Once a liquidator is selected, a director/shareholder will be provided various documents to commence the liquidation process including;

The Process of a Liquidation
Minutes of a Meeting of Directors – the directors need to resolve the company is insolvent. They are then required to call a meeting of the shareholders who will actually deal with the insolvency of the company and make the appointment of a liquidator.
Consent to Short Notice – normally it takes 21 days to call the meeting of the shareholders however this period may be waived if 95% of shareholders sign a Consent to Short Notice. This means if the consent form is signed the meeting of shareholders may be held immediately.
Minutes of Meeting of Shareholders – this is the meeting at which a Liquidator is appointed and when the company is actually placed into Liquidation.
Once the company is in Liquidation, the Liquidator is required to write to all creditors and call a meeting of creditors which is to be held within 11 days of the date of appointment. In his correspondence, the liquidator will provide all creditors with;
Notification of the appointment of the liquidator and the liquidation together with a short report on the companyNotice of the Meeting of Creditors including the time, date and place it will be heldA 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 owedASIC information sheets – being guides for creditors and details of a Liquidator’s remuneration.

The Insolvency Experts provide expert advice and a streamlined method of placing a company.

A company can be placed into liquidation within 24 hours if necessary.

Call and speak with one of our senior partners now to obtain information that will assist with your decision as to whether liquidation is appropriate in your circumstances.

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

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What happens to Leased Assets in Liquidation?

The usual case when a person enters into an agreement for a lease or hire purchase or other such finance is that they almost always sign a personal guarantee for the facility.

Understanding most of these facilities are personally guaranteed, a director needs to appreciate what will happen with those arrangements when the company is placed into liquidation.

Leased assets in liquidation
As far as a liquidator is concerned, he is only interested in selling assets owned by a company so he can return funds to the creditors.

The fact that an asset may be subject to finance only slightly complicates the issue.

If the liquidator finds an asset is subject to finance, an assessment must be made to compare;

The value of the asset subject to finance if it were offered for sale
The payout value of the finance
1. If the value of the asset exceeds the payout value of the finance – the item is considered to have positive equity and therefore considered to be an asset of the company capable of being sold – which is precisely what the liquidator will want to do – sell the net equity in the item.

And the item could be a car used by the director – and the director may wish to remain in possession of the asset so the liquidator may sell the car to the director who would need to pay the net equity amount to the company in liquidation to remain in possession of the item – as well as continuing to service the payments required under the finance agreement.

2. If however the payout value of the finance exceeds or is greater than the value of the asset – the item is not considered an asset – as it has negative equity.

In other words, the Liquidator won’t be able to sell it and therefore will have no interest in the item (even if all payments are up to date).

In these cases, the liquidator will formally disclaim any interest the company may have had in the asset by sending a notice saying that to the bank or finance company.

Once the bank receives this notice, it can be predicted they will act in a number of ways.

Firstly, if they are uncomfortable with the liquidation, the director or the level of security and they have experienced difficulties with getting paid under the agreement, they may repossess and sell the item.

If this happens, the guarantor can expect collection fees, penalties and interest will be charged together with any shortfall on the facility after the item has been sold at auction.

Clearly, depending on the size of the shortfall, bankruptcy or the loss or sale of the guarantors’ home or other assets may follow.

Alternatively, if the guarantor is able to discuss the issue with the bank or finance company and satisfy them the finance agreement will be honoured, it is common to see the institution allow the agreement to continue with the guarantor maintaining possession of the financed equipment.

If a guarantor is unable to continue servicing the finance agreement, they may consider selling the financed equipment.

As the item is financed, it will generally have some encumbrance noted on title and as such, clear title will not be able to be provided to a purchaser without this being removed.

If a sale of the item is possible, but for an amount less than what it would cost to payout the finance, it will be necessary for the guarantor to provide a personal payment to ensure sufficient funds are available to payout of the finance agreement in full. It is only when payment in full is made that the finance company will agree to removal of any listing against the title.

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The Insolvency Experts provide expert advice and regarding all issues of insolvency.

Call and speak with one of our senior partners now to obtain information that will assist with your decisions.