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7 Reasons Business Liquidation is a Good Idea

Posted by Revive Financial on May 1, 2015 12:00:00 AM

Let us clear up why business liquidation is the right decision...

If you’re wondering if you should even bother liquidating your company, here are some very good reasons to do it:

1. You can avoid the risk of breaching your director duties

Walking away and doing nothing is definitely not the way to go. Not only do you risk creditors tracking you down for payment and having unpaid (and angry) employees, you’ll also be breaching your Director’s Duties.

General duties imposed by the Corporations Act on Directors and Officers of companies include:

  • Exercising your powers and duties with the same care and diligence as a reasonable person. This includes taking steps to ensure you’re properly informed about the financial position of the company, and ensuring it doesn’t trade if it’s insolvent.
  • Exercising your powers and duties in good faith in the best interests of the company, and  for a proper purpose.
  • Not using your position improperly to gain an advantage for yourself or someone else, or  to cause detriment to the company.
  • Not to improperly use information obtained through your position to gain an advantage for yourself or someone else, or to cause detriment to the company.

By walking away, you may also face penalties from the Australian Securities and Investments Commission (ASIC).

2. You can avoid the risk of trading while insolvent

As well as the general directors’ duties, Directors also have a duty to prevent their company from trading if it’s insolvent. (To see if your company is insolvent, check out our 16 Signs of Insolvency checklist.)

In short, a company is insolvent if it can’t pay all its debts when they’re due. So before you incur a new debt, you must consider whether you have reasonable grounds to suspect your company is insolvent, or will become insolvent from incurring the debt.

3. Employees can use the Fair Entitlements Guarantee (FEG) to receive their entitlements

When a Director is contemplating putting their company into liquidation, they often fear the loyal and hardworking staff won’t receive their entitlements.

Fortunately there’s a government safety net that protects employee entitlements in these situations.

FEG is available to employees who weren’t paid their entitlements because their employer went bankrupt or into liquidation on or after 5 December 2012. You can find out more about it on the Department of Employment’s website.

4. You can avoid a potential Director Penalty Notice (DPN)

If the ATO issues a DPN notice it can make you personally liable for your company’s PAYGW and unpaid Superannuation to the ATO.

And abandoning your company to avoid receiving the actual notice won’t help either, as the ATO can still make you personally liable.

However, by putting your company into liquidation within 21 days of receiving the DPN you can avoid personal liability.

5. You can stop creditors harassing you for payment

If you appoint a Liquidator they’ll write to your creditors, which will put an end to them harassing you for payments from the Company.

If you don’t have a Liquidator, your creditors may start legal action through the courts. Liquidation can prevent legal action and the need for you to:

  • go to court
  • stop a sheriff executing a writ
  • stop debt collectors chasing the company.

6. You can choose your Liquidator

In this stressful time you’ll want a Liquidator who’s willing to work with you to resolve the situation. However, if a creditor winds the company up through the courts they get to make the appointment. Do you want the liquidation being handled by someone they choose?

7. You can get some closure and move on

Declaring your company insolvent is never easy. But by starting the liquidation process sooner rather than later you’ll get some much-needed closure. The anxiety and stress will start to ease, and you’ll be able to get on with your life.

For more information on Company Liquidation, check out our Company Liquidation page here. 

Topics: Company Liquidation

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