Frequently Asked Questions

What is the difference between company liquidation and administration?

What is the difference between company liquidation and administration?

When a company encounters financial distress there are two options: liquidation or Voluntary Administration.

Liquidation is the winding up of a company and its business which ends when the company is deregistered by ASIC.

Liquidation can apply to insolvent companies as well as solvent businesses. A liquidation can occur either involuntary or voluntary. A creditor can initiate liquidation of the company on an involuntary basis, through the courts, if the company refuses or declines to pay any amount owed exceeding $2000. Alternatively, a company, through its directors and members can initiate liquidation on a voluntary basis. Appointing a Liquidator on a voluntary basis clearly has advantages as you can avoid the stress and hassle of court and you can also appoint a Liquidator of your choosing (rather than allowing the creditor to nominate a Liquidator of their choosing).

Liquidation involves the company’s assets being collected and realised and the proceeds will be used to initially pay for the liquidation process and if there is any surplus a dividend will be declared and paid to the creditors on a pro-rata basis.

Voluntary Administration was introduced to provide companies with a flexible procedure which allows company directors to act quickly without the need for member approval if the company is insolvent or is likely to become insolvent in the near future. The process provides companies the time to develop and implement strategies to restructure its debts under the independent supervision of a Registered Insolvency Practitioner. The main benefit of a Voluntary Administration is that it provides the company an opportunity to continue operating subject to creditor approval of the restructuring plan.

An Insolvency Practitioner, otherwise known as an Administrator, steps in to assume full control of the company’s business and will report to creditors with their findings on the financial position of the company. Within this period the directors will have the opportunity submit a proposal for a Deed of Company Arrangement if they wish to restructure the financial position of the company.  If the directors decline to submit a proposal for a Deed of Company Arrangement the company will most likely proceed into Voluntary Liquidation.

Voluntary Administration is internationally viewed as a successful financial restructuring tool which has helped many Australian businesses to survive. Voluntary Administration is an expensive process so we only advise our clients to proceed down this path if the business is financially viable and can be restructured. If the underlying business is not financially viable then we recommend that the company be placed directly into liquidation to avoid unnecessary costs.

For more information about Company Liquidation or Voluntary Administration please call us for FREE advice on 1800 210 073.

What is business bankruptcy?

What is business bankruptcy?

The term business bankruptcy is a misnomer as the legal term for a business failure is a “company liquidation”.

Company directors with business debts or tax debts should seek the advice of a registered company liquidator.

Call us today if you would like any more information on what is business bankruptcy on our toll FREE advice line on 1800 210 073.

When can you become personally liable for a business debt?

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.

Call us today if you would like any more information about business debts on our toll FREE advice line on 1800 210 073.

What is Registered Liquidator?

What is Registered Liquidator?

Liquidators are qualified insolvency specialists who are licensed by ASIC  to wind up failed or insolvent companies. To become a Registered Liquidator you will need to hold a suitable accountancy degree and also be a member of the Institute of Chartered Accountants or CPA Australia. Registered Liquidators should have also studied the course offered by the Insolvency Practitioners Association of Australia and become active members.

Before a person can provide company liquidation services they firstly need to 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 yearly return with ASIC. You can search the  national register of liquidators by clicking here.

Here at CRS Insolvency Services our partners are fully registered and licensed to offer all insolvency services.

Call us today if you would like any more information about about a Registered Liquidator on our toll FREE advice line on  1800 210 073.

What is business debt?

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 or incurred the debt knowing the company was insolvent or lastly failed to comply with a Directors’ Penalty Notice issued by the Tax Office.

Call us today if you would like any more information about what is a business debt on our toll FREE advice line on  1800 210 073.

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

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.

Call us today if you would like any more information about what payments can be clawed back a liquidator on our toll FREE advice line on 1800 210 073.

What is a Directors’ Penalty Notice?

What is a Directors’ Penalty Notice?

A Directors’ Penalty Notice is issued by the Australian Taxation office and will be issued to the directors’ residential address as it is registered with the Australian Securities and Investments Commissions (ASIC). For that reason it is imperative that directors maintain their current residential address details with ASIC.

The Directors’ Penalty Notice requires a director to take one (1) of the four (4) alternative steps within twenty one (21) days to avoid personal liability;

  • Pay the debt in full; or
  • Enter and installment arrangement to pay the debt; or
  • Place the company into Voluntary Administration; or
  • Place the Company into Liquidation.

If the twenty one (21) day period expires and the director hasn’t implemented one (1) of the four (4) options then the director will become personally liable for the amount listed in the notice.

Furthermore, directors need to be aware that if your if your lodgements with the ATO are more than 3 months overdue directors become personally liable for unpaid PAYG and employee super contributions.  In other words, even if you take one of 4 steps listed above within twenty one (21) days of receiving the notice you are still personally liable for the debt.

To learn more about the Directors’ Penalty Notice regime  call us now on our toll FREE advice line on 1800 210 073.

How does a liquidation end?

How does a liquidation end?

It is important to note that before the liquidator can finalise the winding up, the appointed liquidator will firstly seek the approval of the Australian Securities and Investments Commission (ASIC) to do so. Once approved the liquidator will lodge final accounts with the ASIC provided and three (3) months after that the company will be deregistered by the ASIC.

Call us today if you would like any more information about how and when a company liquidation ends on our toll FREE advice line on 1800 210 073.

How long does the liquidation last?

How long does the liquidation last?

There is no set time limit and a liquidation may last from 6 months to many years depending upon the complexity of the issues involved. In most circumstances, the liquidator will usually try to finalise the liquidation within twelve (12) to twenty four (24)  months.

Call us today if you would like any more information about how long does the liquidation last on our toll FREE advice line on 1800 210 073.

Will the employees get paid?

Will the employees get paid?

The Commonwealth Government provides an employee safety net for employees of failed businesses. The scheme is set out in the Fair Entitlements Guarantee Act 2012 (FEG Act) and seeks to provide a scheme of last resort for employees who have lost their employment as a result of their employer’s insolvency and are owed employee entitlements and the entitlements cannot be immediately paid by the appointed that are not able to be paid by the insolvency practitioner handling the insolvency of the employer.

The FEG scheme will pay out claims (limits apply) for the following entitlements:

  • 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); and
  • Unpaid capped redundancy pay (up to four weeks per year of service).

The FEG Scheme does not pay out unpaid superannuation and employees should be aware that the scheme will not pay their entitlements if they resign after the insolvency practitioner handling the insolvency of the employer has been appointed.

Further information can be obtained through the FEG Hotline on 1300 135 040, or the FEG Mailbox at FEG@deewr.gov.au

Will the company liquidation affect my personal credit rating?

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 control the process and have an insolvent company wound up voluntarily a creditor may take control of the process and have a court liquidator appointed.

Personal guarantees

If you have provided a personal guarantee and the company defaults on the facility then the provider of credit (usually a bank, finance institution or trade suppliers) can pursue you personally for the debt. The credit provider does not need to wait for the company liquidation to be finalised before they can enforce the personal guarantee. If you have provided a personal guarantee and you need to place your company into liquidation, then you may need to make a personal arrangement with that creditor outside of the liquidation process.

Insolvent Trading

Insolvent trading can only be acted upon by a company liquidator or a creditor (with the approval of the liquidator). A director of a company can only be liable for insolvent trading if the company was insolvent when a debt was incurred. Liquidators have an obligation to review the books and records of the company and form a view as to whether the company traded whilst it was insolvent before it was placed into liquidation. Liquidators must report their findings to the Australian Securities and Investments Commission and to the creditors. If the liquidator does not have sufficient funds (from the realisation of company assets) then the liquidator may require funding to commence insolvent trading proceedings. Liquidators can also apply to ASIC for funding.

ATO Directors’ Penalty Notice

The ATO can issue a company director with a penalty notice under the Income Tax Assessment Act. If you receive a Directors’ Penalty Notice from the ATO you must act promptly. You have twenty one (21) days from the time the notice was issued to do one of the following:

  1. Pay the debt in full; or
  2. Enter into a repayment payment with the ATO; or
  3. Ensure that the company has been placed into a Creditors’ Voluntary Liquidation (within the twenty one (21) day period); or
  4. Place the company in Voluntary Administration (within the twenty one (21) day period).

If you have not done one of the above within twenty one (21) of the notice being issued then you may become personally liable for the amount listed in the notice. To learn more about ATO Director Penalty Notices

Call us today if you would like any more information about how a company will affect your personal credit rating on our toll FREE advice line on 1800 210 073.

Will I be disqualified as a director by ASIC?

Will I be disqualified as a director by ASIC?

If you have been a company director and you have been involved in two (2) or more companies within the last 7 years which have been placed into liquidation, then the Australian Securities Investment Commission(ASIC) may consider a director banning order against you. ASIC may also issue a director banning order if it has other grounds like:

• You have been convicted of fraud
• ASIC has reason to believe that the person is not of good fame or character; or
• ASIC has reason to believe that the person is not adequately trained, or is not competent

If you received a director banning order, this would mean that you would be unable to act as a company director or take part in the management of a company for the time period set out in the notice. The usual time period for a banning order is between one (1) to five (5) years, however it can be up to ten (10) years. A director banning order is not automatic and if you receive a notice setting out ASIC’s intention to issue an order, you will firstly be given an opportunity to appear at a private hearing and make submissions on the matter.

Furthermore, if you become personally bankrupt you would be unable to act as a company director or take part in the management of a company for the time period of your bankruptcy.

Call us today if you would like any more information about director disqualification on our toll FREE advice line on 1800 210 073.

What are the costs of placing my company into liquidation?

What are the costs of placing my company into liquidation?

CRS Insolvency Services are happy to discuss an agreed fee to place your company into liquidation.

By way of background most Liquidators calculate their remuneration by applying hourly rates.  In more straightforward cases many liquidators are happy to agree a fee by placing a cap on their time costs (particularly if the company has ceased to trade). If the company is still trading or has assets to realise or has complex legal issues then most liquidators will calculate their remuneration by applying hourly rates.  All liquidators must obtain creditor approval before they can draw any remuneration. At CRS Insolvency Services, we have highly competitive fees are charges and would be more than happy to discuss an agreed capped fee.

Call us today if you would like to discuss the costs of placing my company into liquidation on our toll FREE advice line on  1800 210 073.

What is the role of the liquidator?

What is the role of the liquidator?

A company liquidation must be carried out by a Registered Liquidator so to ensure that all parties are treated fairly and as prescribed by the Corporations Act. The liquidator must be independent and has a duty to act impartially for the benefit of all creditors. The liquidator has a number of duties to carry out and listed below are some examples (these are not exhaustive):

  • To protect and to realise the assets of the company
  • To investigate the affairs of the 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 company’s failure and to report these findings to ASIC
  • To distribute any surplus funds (after the costs and expenses of the liquidation have been paid) to the employees and thereafter the unsecured creditors on a pro-rata basis.
  • After the affairs of the company have been fully dealt with and ASIC has provided the liquidator with a clearance the liquidator must hold a final liquidation meeting of members and the creditors.

Call us today if you would like to discuss the role of the liquidator on our toll FREE advice line on  1800 210 073.

What are my obligations to the liquidator?

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 company’s affairs.

Furthermore, directors must fully co-operate with the liquidator and provide all reasonable assistance which the liquidator may require from time to time.

For this reason it is important that you select a liquidator that you believe you will be able to work with in a professional capacity. CRS Insolvency Services pride themselves on high client service standard and we will always act in a very professional manner, regardless of the situation.

The liquidator will require the books and records of the company and you will also need to attend the first liquidation meeting.

Call us today if you would like to discuss what obligations you will have if you place your company into liquidation on our toll FREE advice line on 1800 210 073.

In what order will the creditors be paid in a liquidation or bankruptcy?

In what order will the creditors be paid in a liquidation or bankruptcy?

The liquidator or Bankruptcy Trustee is obliged to pay creditors is a strict order as set out in the Corporations Act and the Bankruptcy Act. If the company has been wound up by the court or a person has been made bankrupt, the petitioning creditors’ costs will be paid first (ie the legal fees to wind up the company or make a person bankrupt), otherwise it is usually the Liquidators’ or Trustee’s costs and expenses which get paid as a priority. After the costs of the liquidation or bankruptcy administration expenses have been paid any outstanding employee entitlements must then be paid as a priority above general unsecured creditor claims. If there are sufficient funds after all of the costs of the liquidation or the bankruptcy administration and employee claims have been paid in full, then ordinary unsecured creditor claims will be paid next.

If the company in liquidation or the bankrupt estate does not have sufficient funds to pay unsecured creditor claims in full, then ordinary unsecured creditor claims will be paid on a pro-rated basis.  Pro rata means that creditors will not receive 100 cents in the dollar.  Let assume by way of an example that a liquidator or Bankruptcy Trustee only has $20,000 available to pay a dividend but has admitted claims totaling $100,000.  So in this example creditors would receive 20 cents in the dollar for every dollar claimed, or 20% of their claim.

Call us today if you would like to discuss the priority of payments in a liquidation or bankruptcy on our toll FREE advice line on  1800 210 073.

Can a company trade while in liquidation?

Can a company trade while in liquidation?

A liquidator may decide to trade a business if he believes it would be in the best interests of all creditors to do so. The liquidator would usually do this if he or she assesses that the business is able to be sold as a going concern or will result in a better return for creditors. A liquidator cannot trade a business for longer than 3 months without getting the approval of the court.

Call us today if you would like to discuss placing your company into liquidation on our toll FREE advice line on  1800 210 073.

What is the effect of the liquidation on unsecured creditors?

What is the effect of the liquidation on unsecured creditors?

Upon the appointment of a liquidator, 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 company, but are able to prove their debts and share in any distribution made by the liquidator.

Call us today if you would like to discuss the effect of the liquidation on unsecured creditors on our toll FREE advice line on  1800 210 073.

Does liquidation affect secured creditors rights?

Does liquidation affect secured creditors rights?

Normally a liquidation of a company does not affect the rights of a secured creditor. The only exception to this general rule is if the secured creditor surrenders their security and proves in the liquidation for their entire claim. Usually a secured creditor will take active steps to secure and realise their security and prove in the liquidation for any shortfall after selling the security.

Call us today if you would like to discuss how a liquidation affects the rights of secured creditors on our toll FREE advice line on  1800 210 073.

What is the effect of liquidation on the company?

What is the effect of liquidation on the company?

Upon their appointment, liquidators take control of all assets of a company. The liquidator has full authority to sell any asset of the company or the complete business as a going concern (if it is viable to do so). Ultimately, the liquidator will dispose of the company’s assets and look to distribute any surplus funds (after the costs of the liquidation) to creditors who have proven their claims.

Call us today if you would like to discuss how a liquidation works on our toll FREE advice line on  1800 210 073.

Do I have to attend the liquidation meetings?

Do I have to attend the liquidation meetings?

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.

Call us today if you would like to discuss how meetings of creditors are conducted on our toll FREE advice line on 1800 210 073.

What investigations will the liquidator undertake?

What investigations will the liquidator undertake?

The liquidator must complete a minimum level of investigations whether or not there are funds in the liquidation. The Liquidator must then report the findings of their investigations to the Australian Securities and Investments Commission pursuant to Section 533 of the Corporations Act. Some of the issues that this confidential report must cover include:

  1. The history of the company and the reasons for its failure;
  2. Report the claims of employees, secured and ordinary unsecured creditors and the nature of the debts incurred;
  3. Report on whether the directors have traded the company whilst it was insolvent;
  4. Report on whether the directors made any preferential payments to creditors which may be recovered;
  5. Report on what offences the directors have committed under the Corporations Act;
  6. Report on whether the directors have previously been involved in a liquidation and whether they should be banned from acting as a director.

The liquidator is also able to publicly examine directors and other people in court.  Other investigation powers include the search and seizure of company assets and company records.  In certain cases a liquidator can apply to court to gain access to a property.

Call us today if you would like to discuss the investigation powers of a liquidator on our toll FREE advice line on 1800 210 073.

How do you show a company is insolvent?

How do you show a company is insolvent?

The definition of insolvency is when a company “cannot pay it debts as and when they fall due for payment”.

This test of insolvency is based purely on cash flow of the company. So if the company “is asset rich but cash flow poor” then the assets of the company will need to be sold urgently or financed to pay the outstanding debts of the company.

A company may also be deemed to be insolvent if it fails to comply with any statutory demand issued against it. Usually, a company will be deemed insolvent if it fails to comply with a statutory demand issued under Section 459E of the Corporations Act. A company may also be deemed to be insolvent if it has failed to maintain proper books and records.

What is Insolvent Trading?

A director must not allow a company to incur debts when they know, or should be aware that the company cannot pay its debts as and when they fall due for payment. If the company is wound up and it can be established that there has been insolvent trading, the directors can be held personally liable to compensate the company for the amount “incurred whilst it was insolvent”. Both the liquidator and the creditors (with the liquidator’s permission) can sue a director for insolvent trading.

Who controls the liquidation process?

Liquidations are controlled by liquidators who are registered company liquidators with the Australian Securities and Investments Commission.

What are the liquidator’s powers?

The powers of a registered company liquidator are extensive and are set out in the Corporations Act. Briefly, the liquidator has all the powers that the directors formerly had together with additional powers to investigate and examine the affairs of the company and realize the company assets for the benefit of creditors. In addition, liquidators have additional powers to exam the directors and others persons associated with the company. A liquidator can also commence proceedings to recover monies for:

  • unfair preferences
  • uncommercial transactions
  • unreasonable director related transaction

Call us today if you would like to discuss if your company is insolvent on our toll FREE advice line on  1800 210 073.

When should I place my company into liquidation?

When should I place my company into liquidation?

You should consider placing your company into liquidation if it is insolvent. Here at CRS Insolvency Services we will firstly assist you in determining whether your company if insolvent or not.  We provide this service 24 hours 7 days a week over our toll FREE telephone line.  Call us now on 1800 210 073 if you have an urgent company liquidation enquiry. This service is FREE of charge and without obligation and your call will be answered by a senior partner of our firm.

In many cases, directors delay too long and in doing so you could put your self at risk of  becoming personally liable for business debts.  If  you are concerned about the insolvency of your company, it is critical that you act early and consult with a fully registered insolvency professional.

Call us today if you would like to discuss placing your company into liquidation. In most cases we can agree a fixed fee. Call our toll FREE advice line on 1800 210 073.

Who appoints a Liquidator to an insolvent company?

Who appoints a Liquidator to an insolvent company?

A company can be wound up by resolution of its directors and shareholders (when done voluntarily), or by the Court if an application is made by one or more creditors.

  1. If a company is wound up by the Court the applicant must prove the company is insolvent. The Court then appoints a liquidator who is usually nominated by the petitioning creditor or is selected from the court’s list of official liquidators. 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.
  2. If a company is wound up voluntarily by its directors and shareholders then they have the opportunity to select and nominate the liquidator of their choice.
  3. A liquidator can also be appointed at the end of a Voluntary Administration process by a resolution of creditors.

The liquidation process is almost identical regardless of how it is commenced.

Call us today if you would like to discuss placing your company into liquidation. In most cases we can agree a fixed fee. Call our toll FREE advice line on 1800 210 073.

What is the purpose of a liquidation?

What is the purpose of a liquidation?

A liquidation or a voluntary administration of a company will be necessary if it has become insolvent.

If your company is insolvent and you are the directors then it is your responsibility to take positive steps to prevent the company from trading whilst it is insolvent.  If your company is insolvent you will need to make this appointment as soon as practicably. To understand the differences between liquidation or voluntary administration please call us now!

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

Call us today if you would like to discuss placing your company into liquidation. In most cases we can agree a fixed fee. Call our toll FREE advice line on 1800 210 073.

Why place a company into liquidation?

Why place a company into liquidation?

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

  1. The company is insolvent and is unable to pay all of its debts as and when they fall due.
  2. The directors wish to avoid the potential of trading whilst insolvent.
  3. Liquidation process protects creditors’, directors’ and members’ interests.
  4. 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.
  5. The director of the company may have been served a Directors’ Penalty Notice by the ATO. If this notice is allowed to expire without appropriate steps being taken, a director may become personally liable for the company’s tax debt.
  6. The shareholders want to bring the company to an end and distribute retained earnings and paid up capital of the company.
  7. The company may be part of a larger group of companies which needs to be restructured.
  8. To bring to an end the overwhelming stress of continuing to trade
What is liquidation?

What is liquidation?

Liquidation is a process by which the affairs of a company are brought to an orderly end by a registered company liquidator. This involves the sale of the company’s property which is then distributed in a fair and equitable manner to creditors. The distribution of property of the company must be in accordance with strict rules imposed upon by the liquidator by the Corporations Act. A company is usually placed into liquidation when it is insolvent (ie unable to pay its bills as and when they fall due).  A company can also be placed into liquidation for other reasons, for example the company can no longer function due to a dispute between the directors or the shareholders want to distribute the retained earnings and paid up capital of the company.