One of the most commonly asked questions by Company directors and business owners, when they are considering placing a company into liquidation, is the costs of the liquidation process.
Firstly, one should understand a company that is insolvent may be wound up essentially in two different ways.
- One method under the Corporations Act is for a company and its shareholders to select and appoint a liquidator of their choosing through what is known as a creditors voluntary liquidation.
- Another method is for the aggrieved creditors to apply to Court to wind up the Company and have a liquidator appointed.
Either way, a registered liquidator is required to act as external administrator for the purpose of a compulsory or voluntary liquidation.
The Shareholders’ choice
An insolvent company may be placed into liquidation voluntarily by a resolution passed by a 75% majority of the shareholders.
Where shareholders wish to appoint a liquidator, the process is known as a Creditors Voluntary Liquidation.
This method of appointment is a process that;
- is paid for by the sale of all Company’s assets, if any remain
- or, if no assets remain, the directors/shareholders may pay a fixed contribution personally towards the cost of the liquidation process.
In this way, there may be no cost to a director of a simple liquidation – as there are sufficient assets able to be realised by the liquidator to cover the costs of the winding up process.
However, if there are no assets, a registered liquidator will provide a quote, in terms of what an appropriate contribution towards the cost of the liquidation should be. This will depend upon a number of factors including the situation of the company, the industry and the number of creditors involved just to name a few. Obviously, the more creditors involved, the more professional time that is likely to be spent in completing the winding up and the higher the contribution required by the director/shareholder.
As a guide only, an insolvent company liquidation with a limited amount of creditors and issues may require a fixed director contribution of as little as $5,500 – $9,000. However, each matter must be assessed and we encourage you to call us anytime on 1300 767 525 for a quote specific to your circumstances.
The Creditors’ choice.
An insolvent company may be wound up as a result of a creditor application to the Court. This is a process that is paid for by the aggrieved creditor and may cost anywhere from $7,000 to $9,000 in legal costs and court filing fees.
In this case, a creditor will require a Consent to Act signed by a registered liquidator and the Court will then appoint that liquidator or another liquidator on the Court’s list. 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 appointed, a liquidator’s role is essentially the same
Regardless of whether the liquidation is commenced at the instigation of the members or the creditors, the liquidation process itself is virtually identical and requires the liquidator to undertake a detailed forensic examination of the company, the actions of its directors and the circumstances leading to the winding up.
Once these investigations are completed, the liquidator must report to ASIC under the Corporations Act regardless of whether the shareholders have selected and paid for the process of liquidation.
Free Advice is available now – Call 1300 767 525
The signs your company may be insolvent can include a combination of a number of the insolvency indicators detailed below;
- 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 inform you and others of potential problems
If you as a director are aware of the insolvency indicators, you may be able to take some action to rectify the problems being experienced before your company is forced into liquidation. Seek advice early.
If you are worried that you are experiencing a number of the insolvency indicators and you want to know what your options are, contact The Insolvency Experts.
Call The Insolvency Experts 24 hours/7 days on 1300 767 525