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Company Liquidation: The Process of Closing Down Your Company

Company Liquidation: The Process of Closing Down Your Company

Deciding to close a business is a difficult decision but often can save people from insolvency. One of the main concerns that an individual has when closing their business is what will happen to the money and how to pay their debts effectively. Not every business is insolvent, but every business has to endure company liquidation once it closes its doors. Generally, people can appoint a liquidator to help distribute the assets or find ways to pay off the debts.

There are typically three kinds of liquidations. Court-ordered liquidations and creditors’ voluntary liquidations apply to insolvent companies. Solvent companies can proceed with members’ voluntary liquidation.

No matter the situation, company liquidation occurs in four steps:

1. Liquidation costs
2. Secured creditors
3. Priority unsecured creditors
4. Unsecured creditors

For secured creditors, this typically handles mortgages or other charges. In Section 12 of the Personal Property Securities Act of 2009, secured creditors are those with a security interest over some or all the company’s assets. These individuals have to be paid before priority unsecured creditors and unsecured creditors.

Priority unsecured creditors such as employees or trading partners are paid after the necessary debts the company owes. Finally, unsecured creditors will be paid last, at times in the form of dividends.

By following this process of liquidating the company, people will ensure that they pay off their debts and allocate all their assets. After liquidation completion, a company can genuinely close its doors and financially release any past balances.

During these uncertain times, stay informed on the latest updates by subscribing to our newsletter. If your business is struggling from the impact of the pandemic or is looking for more information on company liquidations, please contact Australian Company Liquidations on 1800 731 155. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.

What does it mean when a company goes into liquidation?

What does it mean when a company goes into liquidation?

When a company is facing insolvency or extreme financial difficulty, company liquidation is the process of closing the business, selling the assets and paying as much debt to creditors as possible. In Australia, there are two paths to liquidation for insolvent companies.

Creditor’s voluntary liquidation occurs when creditors vote for liquidation after a voluntary administration or terminated deed of company agreement. Court liquidation usually happens after a creditor has applies to the court to appoint a liquidator to wind up the company. Regardless of the path taken, the result is the same.

What does liquidation mean for company directors?

During liquidation, the primary role of directors is to fully co-operate with the liquidator. They must provide all information about the company, its books and its assets to the liquidators and attend a creditor’s meeting, if requested to, to make the information available to them as well. Directors must also produce a written report for the liquidator within 14 days for involuntary liquidation and 7 days for voluntary liquidation.

Liquidators will be looking closely at whether directors knew the company was trading while insolvent. They will also be looking for inappropriate dealings. The consequences of any transgressions for directors can be severe, up to and including criminal proceedings.

What happens to shareholders when companies go into liquidation?

Shareholders are the last in line when a company goes into liquidation and only receive a return once creditors and the liquidator have been paid. There is no requirement for the liquidator to keep them informed of anything. Shareholders have no right to vote on how the process is conducted.

What happens to employees?

Employees will lose their jobs if their employer goes into liquidation. If there are not enough assets to cover debts, they may also miss out on some of their entitlements. The Federal Government runs the Fair Entitlements Guarantee Scheme. This provides minimum payments in terms of unpaid wages, annual and long service leave, payment in lieu of notice and redundancy pay.

If your company needs to be liquidated, please contact Australian Company Liquidations on 1800 175 497. We are registered company liquidators who offer a free 24/7 insolvency hotline for Australian directors seeking expert advice.

What Happens to Proceeds When a Company Enters Liquidation?

What Happens to Proceeds When a Company Enters Liquidation?

For creditors and the liquidator, one of the key concerns is what will happen to the money and the order of priority the debt is paid. If you are a creditor of a company entering into liquidation, you will be monitoring the process to ensure that you are receiving all payments owed. If you are a director, you will be aware that the liquidator can assist you distribute the proceeds.

Liquidation: Solvent and Insolvent Companies

There are three types of liquidations: court ordered, creditors’ voluntary and members’ voluntary. The first two apply to insolvent companies while the latter is the type of liquidation solvent companies tend to choose.

Solvent companies are generally able to make good its debt obligations, however this is not the case for insolvent companies. Under these circumstances, shareholders, suppliers, lenders and other creditors will be concerned about the order in which debts are repaid, if at all.

The order in which debt repayments are made depends on whether the creditor is secured or unsecured, with secured creditors receiving priority. The priority of payment is:
1. Liquidation costs
2. Secured creditors
3. Priority unsecured creditors, i.e. employees
4. Unsecured creditors

Secured Creditors

Secured creditors is defined in section 12 of the Personal Property Securities Act 2009 and refers to those who have a security interest, such as a mortgage or charge, over some or all of the company’s assets.

Secured creditors have different rights to unsecured creditors in terms of debt defaults, and are allowed, for example, to legally appoint an independent receiver to sell some or all of the charged assets to repay the debt.

Unsecured Creditors

Unsecured creditors have no security over the company’s assets and could be trading partners that supply goods or services to the business. It may also include the ATO where there is outstanding tax debt.

If there are sufficient funds remaining after the payment of secured and priority creditors, unsecured creditors can get paid in the form of dividends.

During these uncertain times, stay informed on the latest updates by subscribing to our newsletter. If your business is struggling from the impact of the pandemic or is looking for more information on company liquidations, please contact Australian Company Liquidations on 1800 731 155. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.

New Small Business Insolvency Reforms from 1 January 2021

New Small Business Insolvency Reforms from 1 January 2021

On 24 September 2020, the Treasurer announced the largest insolvency reform in 30 years for small businesses. The legislation — Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth), was recently passed by Parliament and came into effect on 1 January 2021.

The legislation had three main components:

1. Small Business Restructuring;
2. Simplified Liquidation for Small Businesses; and
3. Further Measures.

In brief, Small Business Restructuring was introduced to help eligible businesses stay in business by restructuring their debts. It provides a quicker and less complex way to deal with debts, involving the appointment of a Small Business Restructuring Practitioner (SBRP). The SBRP will work with the business to formulate and implement a restructuring plan, which must be approved by the company’s creditors. To be eligible the business must not have debts exceeding $1m. Other eligibility criteria apply.

Simplified liquidation will mean small businesses can complete liquidations quicker and at a lower cost than usual. It will only be available for creditors’ voluntary liquidation and not for members’ voluntary liquidation or court ordered liquidations. The simplified liquidation process will remove some of the red tape, such as holding meeting of creditors.

Further measures, such as electronic communications with creditors, were enacted to ensure the insolvency industry is able to communicate with creditors in a timely and cost effective manner.

Full details about the nature of these reforms can be found here.

If you would like to learn more about the new changes to insolvency laws, please contact Australian Company Liquidations on 1800 175 497. We are registered company liquidators who offer a free 24/7 insolvency hotline for Australian directors seeking expert advice.

Cheapest Liquidation Company in Sydney

Australian Company Liquidations (ACL) is a fully licensed and highly reputable liquidation company with a head office in Sydney. Our specialists are all registered with the Australian Securities and Investments Commission, so you can rest assured knowing that your case is being handled by experts in the field. We are not unlicensed brokers who will refer your case to external third parties to complete the liquidation.

 

ACL is the most affordable liquidation company in Sydney. We don’t charge hourly rates like our competitors, and
will instead negotiate a flat rate with you before you commit to the process – our liquidations start from just $3,500*. At ACL, liquidations are our specialty, meaning not only that we are highly skilled but also that our work practices have been refined and streamlined after years of experience. This results in significant cost savings, which we pass onto our customers!

That’s why we offer the cheapest liquidation prices Australia wide – guaranteed. If you happen to receive a cheaper price from another registered liquidation company in Sydney (or anywhere else in Australia), simply provide us with a written quote and we will happily beat it!

PROVIDE US WITH A WRITTEN QUOTE FROM ANY OTHER
AUSTRALIAN LIQUIDATION COMPANY AND WE WILL BEAT IT!

At ACL, we act fast. Once you provide us with your company’s name and ABN details, we will provide you with appointment documents within a few hours. As soon as these documents are signed by the company directors and shareholders, your business will formally be in liquidation.

Looking for obligation-free advice? Our licensed experts are just one call away. Call the leading liquidation company in Sydney today on our free 24-hour hotline at 1800 731 155.

Need Expert Advice? Call Us Now on 1800 731 155

COVID-19 Insolvency Relief ending on December 31st

COVID-19 Insolvency Relief ending on December 31st

As suppliers and creditors, there is nothing more frustrating than chasing your customer for payment of goods or services you have provided in good faith and then receiving notification from an insolvency practitioner that they have been placed into Receivership, Voluntary Administration or Liquidation. The temporary COVID-19 relief measures announced by the Government on the 25th of March 2020 which were extended to 31st of December 2020 made the recovery of debts even more difficult.

The good news for many is that the Australian Government announced major proposed insolvency law reforms to commence on the 1st of January 2021, which will include two new insolvency procedures for small businesses which have liabilities of less than $1 million.

The new insolvency process will be known as:

(1) Small Business Restructuring Proposal (SBRP); and
(2) Simplified Liquidation.

Small Business Restructuring Proposal

The SBRP involves a small business restructuring practitioner, who is a registered Liquidator, working with the business for 20 days to develop a restructuring plan. During this time, all creditors are notified and prohibited from taking any action against the company or enforcing guarantees against directors or relatives. The plan will then be sent to creditors, who are given 15 days to vote on the plan. Where the plan is approved, secured creditors will be bound by the plan to the extent that their debt exceeds the value of their security. However, if the plan is vetoed, the company will be placed in Voluntary Administration or the new proposed streamlined liquidation.

Eligibility for the SBRP includes:

(1) The business must be incorporated, not a sole trader; and
(2) Its liabilities must not exceed $1m.

Small Business Liquidation

Simplified liquidation will generally be the same as before, however with some cost savings such as:

● Lesser possibility of a liquidator seeking to clawback unfair preference payments from a creditor who is not related to the company;
● Certain requirements to call creditor meetings and forming committees of inspection are removed;
● The dividend process and proof of debt is simplified;
● Technology use will be maximised in voting and other communications.

Creditor rights and safeguards during Small Business Liquidation

The legal rights afforded to creditors such as employees will not change. Safeguards will be included to prevent companies from using the process to undertake corporate misconduct such as illegal phoenix activity.

As can be seen from the above there are many new and complex issues suppliers and creditors will need to address in the future.

However, if you have any questions or require assistance in dealing with your debtors, customers, financiers or suppliers, please do not hesitate in contacting Australian Company Liquidations on 1800 731 155. We are registered company liquidators who offer free expert advice 24/7 to help you with your financial issues.

Safe Harbour Provisions (Insolvent Trading) – What Directors Need To Know

Safe Harbour Provisions (Insolvent Trading) – What Directors Need To Know

Background

In response to the COVID-19 pandemic, the Federal Government announced a Safe Harbour amendment to the Corporations Act 2001 (Cth) (Corporations Act) to provide temporary relief measures for financially distressed businesses. Effective from 25 March 2020, the amendment protects directors from being personally liable for debts incurred during insolvent trading if the debt was incurred:

a. in the ordinary course of the company’s business;
b. during the six-month period (or any extension of the period);
c. before the appointment of the administrator or liquidator (during those periods).

The exact section is set out here.

On 7 September 2020, the six-month period was extended until 31 December 2020 as released in this statement by the Government.

Alert for directors

It has come to our attention that there is one essential aspect of the amendment which directors need to be aware of.

That is, in order for the relief to apply the company needs to appoint an external administrator or liquidator before 31 December 2020.

This means that there are no protections for insolvent trading if the company is placed in administration or liquidation after 31 December 2020 (being the end of the relief period as currently set by the government).

Directors then need to place their company in administration or liquidation BEFORE 31 December 2020 to receive protections for insolvent trading.

During these uncertain times, stay informed on the latest updates by subscribing to our newsletter. If your business is struggling from the impact of the pandemic or is looking for more information on company liquidations, please contact Australian Company Liquidations on 1800 731 155. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.

Safe Harbour Amendments – What Advisers Need To Know

Safe Harbour Provisions (insolvent trading) – What Advisers Need To Know

Background

In response to the COVID-19 pandemic, the Federal Government announced a Safe Harbour amendment to the Corporations Act 2001 (Cth) (Corporations Act) to provide temporary relief measures for financially distressed businesses. Effective from 25 March 2020, the amendment protects directors from being personally liable for debts incurred during insolvent trading if the debt was incurred:

a. in the ordinary course of the company’s business;
b. during the six-month period (or any extension of the period);
c. before the appointment of the administrator or liquidator (during those periods).

The exact section is set out here.

On 7 September 2020, the six-month period was extended until 31 December 2020 as released in this statement by the Government.

Alert for advisers to directors

It has come to our attention that there is one essential aspect of the amendment which advisers need to be aware of.

That is, in order for the relief to apply the company needs to appoint an external administrator or liquidator before 31 December 2020.

This means that there are NO protections for insolvent trading if the company is placed in administration or liquidation after 31 December 2020 (the end of the relief period currently).

Advisers then need to instruct directors to place their company in administration or liquidation BEFORE 31 December 2020 to receive protections for insolvent trading.

During these uncertain times, stay informed on the latest updates by subscribing to our newsletter. If your business is struggling from the impact of the pandemic or is looking for more information on company liquidations, please contact Australian Company Liquidations on 1800 731 155. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice.

How to Close Down your Company and Appoint a Liquidator

Closing down your company can be a stressful time. If your company cannot afford to repay its debts, it is most likely insolvent. As a director, you have an obligation under the law not to incur any further debts when your company is insolvent and you may wish to consider winding it up and appointing a liquidator.

Liquidation

If your company is insolvent, liquidating the company means your business stops operating and a liquidator is appointed either by the shareholders or by court order. The liquidator’s role is to preside over the orderly winding up of the company.

The liquidator will oversee that there is a fair and equitable distribution of the company’s assets (which must be in accordance with the Corporations Act). The liquidator will investigate the affairs of the company to ensure that no creditor has received any unfair advantages over other creditors (such as received an unfair preference).

The liquidator will record the appointment with ASIC. As a director you will still need to fully co-operate with the liquidator and provide all necessary assistance such as delivering the company’s books and records to the liquidator.

Seeking advice from company liquidation experts can ease this stressful process and help prevent unwanted legal surprises.

If you are company director and you are considering a company liquidation, then call Australian Company Liquidations for free and confidential advice.  We operate a 24 hour insolvency hotline. Call now on 1800 731 155.

 

How COVID-19 Insolvency Relief Laws Have Impacted Insolvency and Winding Up Applications

The number of insolvencies and winding up applications in Australia have drastically decreased since the introduction of the temporary relief laws to combat the impact of the COVID-19 crisis on businesses.

When comparing July to August 2020 and July to August 2019, winding up applications to ATO have gone down by 89% and court liquidations down by 74%. Similarly, we see that Voluntary Administrations are also down 62% and Voluntary Liquidations by 37%. This has been consistent with ATO’s sympathetic approach to focusing on business support measures rather than recovery procedures.

In August 2020 we also saw a total of 382 formal appointments throughout Australia for Voluntary Liquidation, Court Liquidation and Voluntary Administration. The majority of applications were attributed to New South Wales (188), Victoria (78) and Queensland (58).

Whilst a total of 19 winding up applications were filed with the Court in August 2020, the ATO did not file any winding up applications in July or August 2020. These numbers have remained relatively consistent since the relief laws came into effect, with only a total of seven court applications received by the ATO in April 2020.

Although the ATO has softened its approach within a COVID-19 environment, we may see these trends coming to an end when these relief measures start winding back. Once the temporary insolvency relief measures come to an end many businesses will have to face the harsh reality of dealing with residual debts and the threat of being wound up if they are no longer viable due to the pandemic.

If you would like more information on company liquidations or would like the right advice for dealing with insolvency then please contact Australian Company Liquidations. We are registered company liquidators who offer a FREE 24/7 insolvency hotline for Australian directors seeking expert advice. Please call us on 1800 731 155 now.