Liquidation is a formal way to wind up a registered company, usually due to having long-term financial difficulties. The Liquidation process involves selling all of your company’s assets, paying the funds received to your creditors and dissolving the business. Although Liquidation is seen as a final option for shutting down your business, this step can come as a relief if you’ve been struggling with your company’s finances for some time. Unfortunately, myths on liquidation still exist and persist to scare directors from taking the next step towards initiating the Liquidation process.
If you’re considering Liquidation as an option for your company, it’s important to debunk these common myths so you can make an informed decision about what to do next.
- 1. As a Director, Can You Liquidate Your Own Company?
- 2. Will Company Liquidation Mean You Will Go Personally Bankrupt?
- 3. Will You be able to get Finance if One of Your Companies Goes into Liquidation?
- 4. Are You Allowed to be a Director of Other Companies if One of Them Goes into Liquidation?
- 5. Is the ATO Always Paid First?
- 6. Are Your Creditors Allowed to Harass You During the Liquidation Process?
- 7. Is a Liquidator the Best Person to Talk to About Your Company's Financial Problems?
1. As a Director, Can You Liquidate Your Own Company?
Liquidations must be carried out by a registered liquidator, not the company director themselves. The appointed Liquidator is the only person who can direct the Liquidation process. As a director, your role during the Liquidation process is to cooperate with the Liquidator. This means supplying the Liquidator with all necessary paperwork, documentation and a written report on your company’s business, property and finances. As defined by the Australian Securities and Investments Commission (ASIC), a director’s duties during Liquidation include:
- Duty to not trade while insolvent,
- Duty to exercise your powers in good faith and in the best interests of your company,
- Duty to not improperly use your position to gain an advantage for yourself or someone else, or to cause detriment to the company, and
- Duty to keep books and records.
The Liquidator will look closely at a director’s conduct of their company to see if there have been any inappropriate dealings, or if the directors knew the company was in trouble but continued to trade while insolvent. However, under new safe harbour laws, directors are protected from insolvent trading penalties if they implemented a genuine plan to turnaround or restructure their company.
Revive Financial are Registered Liquidators and can provide you with any help you need to begin the Liquidation process, or simply discuss your company’s financial situation to see if Liquidation is the right option for you. Get in touch with us today.
2. Will Company Liquidation Mean You Will Go Personally Bankrupt?
It’s common for directors to believe Liquidating their company will affect their own personal finances, but having your company go into liquidation doesn’t mean you will enter bankruptcy yourself. Your company is a separate legal entity, which means your personal finances are separate from your company’s finances. As defined by the Australian Government, your company has the same rights as a natural person and can incur debt, sue and be sued. As a director, you can limit your personal liability and are generally not liable for your company’s debts. There are, however, some exceptions. The four main areas of personal liability for directors are:
- Personal guarantees given to landlords, trade creditors and financiers.
- ATO director penalty notices for unpaid PAYG and superannuation.
- Insolvent trading for debts incurred when your company is insolvent.
- Director loan accounts where you pay yourself drawings.
Further information on these, and other, director liability risks is available here.
Of serious concern is that under new laws, company directors could face jail time or hefty fines for not paying their employees’ superannuation. This makes superannuation the first bill that should be paid, not the last.
3. Will You be able to get Finance if One of Your Companies Goes into Liquidation?
Company Liquidation may affect your ability to obtain credit, but banks may still lend in these circumstances. Alternatively, there are many non-bank lenders who specialise in lending for directors who have been refused loans as a result of a related company liquidation. Our partner, Positive Solutions Finance (PSF), can help with funding for businesses and directors. For directors who are looking for a home loan or help managing personal debts, PSF provides specialised solutions. For businesses looking for a business loan to avoid liquidation, PSF can assist with loans for cashflow, tax debts and other business finance. They provide fast business loans to help consolidate your company debt. Get in touch with them today for a free consultation on 1800 40 3328.
4. Are You Allowed to be a Director of Other Companies if One of Them Goes into Liquidation?
If you’re a director of a company that goes into Liquidation, you’re not automatically banned from being a director of another company. You’re allowed to hold your directorships, or be appointed as a director, even if one or more companies enter Liquidation.There are, however, three exceptions to this rule:
- You can’t act as a director of any company if you’ve been declared personally bankrupt until you’re discharged from the bankruptcy.
- If you’ve served as a director for two or more liquidated companies that have gone into liquidation within a seven-year period, ASIC has the ability to ban you from being a director.
- You will be automatically disqualified if you’ve been convicted of an offence under the Corporations Act 2001.
5. Is the ATO Always Paid First?
Except for unpaid superannuation guarantee charge, the Australian Taxation Office (ATO) rank alongside other unsecured creditors for payment in liquidation. The order is as follows:
- Costs of the liquidation.
- Secured creditors.
- Employee entitlements including superannuation.
- Unsecured creditors – including the ATO.
6. Are Your Creditors Allowed to Harass You During the Liquidation Process?
Once the Liquidation process has started on your company, your creditors are not allowed permitted to pursue payment or continue legal action against the company. The appointed Liquidator will be responsible for dealing with any creditor enquiries. They are required to issue a report to your company’s creditors as soon as possible, notifying creditors of their appointment and details. Creditors are not allowed to recover their debts directly from you, unless they have a personal guarantee.
We understand one of the biggest challenges for directors of insolvent companies is dealing with creditors. Appointing a Liquidator has the enormous benefit of removing the stress and uncertainty of knowing what to say to creditors and working out who to pay. Doing the wrong thing, such as preferring particular creditors over others could be a breach of your director’s duties. A Liquidator will deal with your company’s affairs legally and fairly to return any money available to creditors.
7. Is a Liquidator the Best Person to Talk to About Your Company's Financial Problems?
No. Speaking to a Liquidator will help you understand whether your company may be insolvent, the options available to it and the risks for you as a director of an insolvent company. You know you're getting the right insolvency advice from a Liquidator because they're qualified professionals. That said, as with any profession, there may be differing opinions. At Revive Financial, we cover with you the full range of options available for your business from loans and finance to turnaround and restructuring, Voluntary Administration and Liquidation. While we understand these options, our specialisation is insolvency, so we work with expert professionals to deliver the right outcome for your business.
Liquidation can put a stop to any worries you have regarding business insolvency and debt. For some companies, it is the right, or only available option. However, if you have a viable business, or wish to avoid liquidation, there are other options you can look at before considering Liquidation.
If you’re trying to decide if Liquidation is the best option for you, consult business debt professionals to help you make an informed decision about your company’s future. Revive Financial are business debt experts who can help assess your company’s financial situation and suggest the best solution for you moving forward. Contact us today on 1800 531 510 to find out if you should Liquidate your company.
For more information on Company Liquidation, check out our Company Liquidation page here.