News.com.au recently reported on the effect China’s economic slowdown is having on Queensland mining towns, particularly in the Bowen Basin, that are currently being devastated by falling consumption in China.

While many, including the Australian Coal industry, pinned its hopes on China’s promise of perpetual economic growth, falling consumption, coupled with an over supply and falling price is having dire consequences on individuals, businesses and communities in Australia.

The loss of communities and the movement of individuals not only impacts the unemployment numbers, but also means many local business owners will face the prospect of liquidation and business failure.

What can company directors and small business learn form this Slowdown?

Director Have Responsibilities

Where communities fail, businesses close and for many, this will raise the question of Voluntary Liquidation. However, as the process poses  serious threats to directors and their personal assets, directors should understand and plan for the dangers before a liquidation begins.

Unfortunately, with the pressure of impending insolvency being as great as it is, many directors Liquidate believing that to be their only option. But this is wrong. There are many options available and The Insolvency Experts will explain them to you.

Before you decide on liquidation, you as a director need to understand how the process of voluntary liquidation will affect you and what legal obligations will be imposed upon you by the Corporations Act and the liquidator.

An unplanned liquidation may not only be a traumatic and costly experience, but it may also be the wrong decision for you.

Liquidation presents serious risks to directors and as such, it is in your best interest to seek advice from your perspective before any formal appointment is made. If you are thinking about a creditors voluntary liquidation, here are three things you should consider.

Company Directors in Voluntary Liquidation are Investigated

When a Director places a company into voluntary liquidation, they effectively agree not only to relinquish control of their business but also to submit themselves to a detailed forensic examination by the liquidator.

A liquidator has a duty to the creditors to explain the reasons why a company has failed and why they have suffered loss. In trying to explain this, the liquidator will closely examine each transaction of the company and particularly those involving the director.

If any breaches of the Corporations Act are discovered, the liquidator must be report it to the creditors and the Australian Securities & Investments Commission. Depending on the conduct, this can lead to the prosecution or disqualification of directors.

Director are legally obligated to meet with the liquidator and to assist with the investigations. If a director refuses to attend certain meetings or to provide various information, the liquidator may seek to have a director prosecuted by the ASIC. Further, if a director is unwilling to co-operate with the reasonable requests of the liquidator, they may be summons to attend a Public Examination in an open court. Failure to attend can result in directors being arrested.

To enable the liquidators investigations, Company Directors must provide:

• The Company’s books and records of the company or details of where they are held
• Records and Documents relating to the activities of the company and its assets.
• Explanations as to the disposal or sale of company property
• Explanation as to the transactions of the company

As noted above, a failure to adhere with the liquidator’s investigations is considered a serious breach of the Corporations Act.

ASIC successfully prosecuted a number of company directors in 2014 for various breaches of the Corporations Act 2001. Many of these prosecutions were for offences including the failure to assist external administrators.

Directors may be subject to banning orders

A Director that has been found by a liquidator to have breached the Corporations Act may be subject to disqualification order by the ASIC.

In practice, a liquidator will undertake a detailed investigation into the affairs of a company and the conduct of its directors. If the liquidator forms the view that a director has engaged in certain breaches of the Corporations Act, including a failure to provide records, or repeatedly behaving in the same manner and that the person has been involved in a number of failed companies, the Liquidator may submit a report to the ASIC recommending banning orders be sought.

If a person has been involved in the failure of 2 or more corporations that have been wound up within 7 years, they may be disqualified from managing corporations for up to 5 years. In some cases, ASIC may even apply to ban a person from acting as a director for up to 10 years however this is somewhat more unusual.

The process of director banning may be challenged through the Administrative Appeal Tribunal and/or the Court however successful challenges rarely occur.

Assetless Administration Fund

Even when a company in liquidation has no funds, the liquidation process still presents directors with significant risks. The reason is that a liquidator may apply for funding under the Assetless Administration Fund.

The fund which was established by government, and that is administered by the ASIC, enables liquidators to undertake investigations and produce detailed reports into the conduct and behaviours of specific directors.

The resulting reports assist the ASIC in its enforcement activities and the banning of directors navigate to this site. A particular focus of the fund is to stop illegal phoenix activity.

A Final Note

The Voluntary Liquidation process requires liquidators to perform a detailed investigation into the reason for the failure of a company as well as the conduct of the directors. This involves a forensic review of all transactions of the company as well as the use of company property and funds by the directors. In addition, the liquidator will examine whether or not the directors allowed the company to trade while insolvent. If the liquidator can demonstrate breaches of directors duties and a failure to fulfil their responsibilities in the best interests of the company and its creditors, they may seek prosecution or take legal claims against the directors.

Considering the serious risks to directors who may be contemplating voluntary administration or voluntary liquidation, it is appropriate that all directors seek advice and information on all the alternatives to determine what would be the best course of action for themselves and their personal assets.

Source: News.com.au

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Disclaimer
This article is not to be construed as legal advice but is presented for information and research purposes only. No guarantee implied or expressed is given in respect of the information provided and accordingly no responsibility is taken by The Insolvency Experts or any member of the company for any loss resulting from any error or omission contained within this article.