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This blog article is intended to help directors understand how to comply with their duty to prevent insolvent trading.

When a company faces financial uncertainty (insolvency), it is common for directors to get caught between conflicting priorities. On one side, they are trying to continue business operations and return the company back to financial health, while on the other side, exercising a duty of care to company stakeholders (i.e. creditors, employees, etc.) who will lose money if the company ultimately fails (is placed into Liquidation).

In such situations, directors should not trade their company while insolvent, nor incur debt that would lead the company to insolvency as Section 588G of the Corporations Act 2001 (the Act) creates an obligation for directors to avoid insolvent trading. In addition to this, directors are to continue to comply with their usual legal obligations including directors’ duties and continuous disclosure obligations.

Throughout the years, What is Liquidation has heard countless stories from directors who operate as their own boss about their debt problems.

Have you ever heard the phrase “It costs money to make money?” Well, realistically that’s the case in the world of business. The main purpose of any business is to make money. Businesses that make money can better deliver their product/service to customers and advance their position in the market, whereas businesses that lose money are potentially on a one-way ticket to Liquidation.

Over the years What is Liquidation has seen that this area of insolvency is commonly misunderstood and in turn causes many problems for those involved in this transaction.

When a company is placed into Liquidation in Australia, a Liquidator’s primary duty is to realise the company’s assets and settle its outstanding liabilities. This will require the Liquidator to review past conduct, decisions and actions undertaken by the company and the management of its affairs.

Ultimately this will result in the Liquidator undertaking an in-depth investigation of the company.

In most cases directors have done nothing wrong in the lead-up to a Creditors Voluntary Liquidation (CVL) and are rarely intentionally insolvent. As such they are unaware of any common risk areas.

Once the CVL starts, Liquidators review and make sure any unintentional actions undertaken by directors in the best interests of the company are appropriately dealt with. But your’re probably thinking it’s a bit too late now.

Over the years, What is Liquidation has helped hundreds of solvent companies to liquidate and distribute their assets through the Members Voluntary Liquidation (MVL) process.  

We understand that directors and/or shareholders of solvent companies don’t want to pay high professional fees to a Liquidator to liquidate and ultimately have access to their funds that they are entitled to. That’s why our services are offered at a low cost fixed price.

This is a common scenario that comes past our desk at What is Liquidation. Most directors of businesses will experience some type of failure to varies degrees and for a number of different reasons. The key is to acknowledge that your business is failing and seek professional advice. So, don’t refuse to acknowledge there is a problem and bury your head in the sand, because we often find that the sooner directors seek our advice, the more options are available to potentially save their business.

Before we get into whether creditors should supply a business during the Voluntary Administration (VA) process, let me give you a bit of an understanding about the VA process.

        In a VA, the Voluntary Administrator is empowered by law to assume control of an insolvent company, superseding the powers of its directors and officers, to manage the company’s affairs and deal with its assets in the interests of its creditors.

Any creditor involved with a company that has failed, wants to know their position. This article will shed some light on the order creditors are paid in a Liquidation process. So, that if you are a creditor of a company in Liquidation then you can have an understanding of your chances.

When a company goes into Liquidation, the question on every creditors mind is when will I get the money owed to me and where do I stand.

Insolvency and bankruptcy are two terms that are often closely associated when talking about debt.

Many people often confuse insolvency and bankruptcy, assuming them to mean the same thing. However, while both words, though similar, essentially mean that a company or person is in serious financial trouble, there are key differences between them.

“Does an individual or company owe you money and you’re finding it difficult to get a hold of someone?”
“Have you been chasing an unpaid invoice only to find out that suddenly the number you are calling has been disconnected?"
“Do you suspect the company you’re dealing with may be in Liquidation?”
“What do you need to do to find out?”

Unfortunately, these are some common questions that some business owners may be asking or issues they may face during the running of their business… if this is you, find out how you register or make a claim in a Bankruptcy or Liquidation.