THE IMPACT OF LIQUIDATION

HOW WILL LIQUIDATION AFFECT MY COMPANY?

The appointment of a liquidator will have significant consequences on your company and employees. These may include the following:

  • Company directors and employees will not be able to make any decisions on behalf of the company — only the appointed liquidator can make decisions
  • In most situations, the company will cease normal trading activities immediately
  • Liquidators will often freeze the company’s bank account, terminate employment contracts and identify and secure the company’s assets.

To learn more, please do not hesitate to call Australian Company Liquidations on 1800 731 155.

IF I LIQUIDATE MY COMPANY WILL I GET BANNED AS A DIRECTOR?

Generally speaking, if you have not been involved in two or more company collapses within the last 7 years then it is unlikely that the Australian Securities Investment Commission (ASIC) will impose a director banning order against you.

However, in more serious cases, ASIC has imposed a director banning order after the director’s involvement in the first company collapse. This occurred in the case of HIH Insurance which collapsed in the early 2000s. ASIC imposed a director banning order through the court and it was found that the directors had breached their duties as directors in that they had:

  • Failed to exercise due care and diligence;
  • Failed to exercise good faith;
  • Improperly used their position as a director (i.e. abused their powers); and
  • Improperly used information they had obtained as a director.

Want to establish whether you may be at risk of receiving a director banning order?

Call the licensed insolvency advisers from Australian Company Liquidations today on 1800 731 155.

CAN I BECOME PERSONALLY LIABLE FOR COMPANY DEBT?

As a company director, you can only become personally liable for company debts under the following circumstances:

  1. You have provided a personal guarantee to an individual creditor (or trade supplier); or
  2. The Court declares that you continue to incur debts whilst the company was insolvent; or
  3. You did not complete and lodge your Business Activity Statements with the ATO within 3 months of their due dates.

To establish whether you are personally liable for your company debts, call the liquidation experts today on 1800 731 155.

WILL THE COMPANY LIQUIDATION AFFECT MY PERSONAL CREDIT RATING?

If your company has been placed into liquidation, this event will be recorded on ASIC’s database. Anyone who pays for a personal name search will be able to see this record. However, once the liquidation has been completed, the listing will be removed.

If you need to refinance your personal assets or are seeking additional personal finance and your new financier is concerned about the liquidation, you can ask the liquidator to issue a letter stating whether or not they have any objections to you obtaining additional personal finance.

If you would like to learn more about how a company liquidation may affect your personal credit rating, call us on 1800 731 155.

WHAT IS THE EFFECT OF THE LIQUIDATION ON UNSECURED CREDITORS?

The appointment of a liquidator will have significant effects on unsecured creditors, including losing the ability to recover any outstanding money from the company. Other ways a liquidation may affect unsecured creditors may include:

  • Preferential payments. If any unsecured creditor has received a payment which the liquidator considers to be “preferential” then the liquidator may attempt to “claw it back”.
  • Goods secured by PPSR charge. If any creditor holds security over goods which has been registered under the Personal Property Securities Register, then that creditor may be able to recover these goods from the liquidator.
  • Court action. Once a company has been wound up (either on a voluntary or compulsory basis) a creditor is unable to commence any fresh litigation against the company or continue any existing litigation.

To learn more about the effects of liquidation on unsecured creditors, call our insolvency experts today on 1800 731 155.

DOES LIQUIDATION AFFECT SECURED CREDITORS’ RIGHTS?

Under normal circumstances, a liquidation does not affect the rights of a secured creditor. Instead, a secured creditor usually relies on their security for the repayment of their debt. If after selling the asset there is a shortfall, they will become an unsecured creditor for the shortfall amount and

A secured creditor can choose to surrender their security andprove in the liquidation for their entire claim, but this would be most unusual as they would then rank equally with unsecured creditors.

A secured creditor needs to be very careful when they vote at a meeting of creditors in a liquidation. For the purposes of voting, a secured creditor should only claim and vote for the anticipated shortfall in their security (if any). In their proof of debt they must disclose:

  • the particulars of their security;
  • the date when it was given; and
  • estimate the value of the security and any anticipated shortfall.

If the secured creditor fails to follow these strict rules as set out in Regulation 5.6.24 of the Corporations Act, then it must be taken that the secured creditors has surrendered their security (unless a court rules otherwise).

If you would like to understand the effect of liquidation on secured creditors we would always recommend that you obtain independent legal advice.

CAN A COMPANY TRADE WHILST IN LIQUIDATION?

MUST READ

A liquidator may decide to trade-on a company if they believe that the company may be sold as a going concern and a sale would provide creditors with a better return.

To justify the decision to trade-on, the liquidator should do an assessment to confirm that the value of the business as a going concern would exceed the value of the assets if they were sold individually.

In doing this assessment, the liquidator should also assess the likelihood of incurring any trading losses whilst the business is sold or whether any other significant costs will be incurred in preparing the business for sale. If it is likely that trading losses will be incurred, then the liquidator should notionally deduct these from the expected sale price of the business and compare the net expected result andcompare that to the break-up value of the assets. This analysis is critical because any trading losses incurred in the process could erode the benefit of a sale. The liquidator has a duty of care to the company and to the creditors, so in order to discharge that duty a liquidator must act in the creditor’s best interests.

If the liquidator needs to trade the business for longer than 3 months (in order to sell it as a going concern) then court approval would be required.

If you would like to discuss to circumstances in which a liquidator can trade-on a business whilst the company is in liquidation, call us on 1800 731 155.

We operate a 24 hour / 7 days a week company liquidation hotline so please call when it is convenient to you.

WILL THE EMPLOYEES GET PAID IF I LIQUIDATE MY COMPANY?

The Commonwealth Government set up a scheme known as the Fair Entitlements Guarantee (FEG) to pay employee entitlements in the event of a company collapse. The FEG scheme will pay for the following entitlements if the employee’s termination resulted from the company collapse:

  • Unpaid and underpaid wages (up to thirteen weeks);
  • Unpaid annual leave;
  • Unpaid long service leave;
  • Unpaid pay in lieu of notice (up to five weeks);
  • Unpaid capped redundancy pay (up to four weeks per year of service).

Employees should be aware that the scheme will not pay out entitlements if they resign following the appointment of a liquidator.
If you would like to discuss how the FEG scheme may be applied for your company liquidation, please call FEG hotline directly on 1300 135 040.

CALL OUR FRIENDLY TEAM TODAY ON 1800 731 155
OUR HOTLINE OPERATES 24 HOURS A DAY, 7 DAYS A WEEK