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Okay, so what is an Insolvency Practitioner? I was once asked if an Insolvency Practitioner (IP) is someone who dissolves things (well to an extent, that’s somewhat true). To explain this, it’s not as easy as you may think it is. In simple terms an IP is a person who is licensed and authorised to give advice for businesses or individuals in relation to their debts and deal with formal insolvency procedures (i.e. Liquidation, Voluntary Administration, Bankruptcy, etc).

An IP’s role differs slightly depending on the particular formal type of insolvency procedure, however, their basic duty is to realise assets to the best of their ability for the benefit of creditors and investigate the affairs of the company or individual to check for the possibility of wrongful or fraudulent activity.

Note: Only licensed IP’s are authorised to take on formal insolvency appointments.

Most IP’s are accountants or insolvency specialists working in firms of accountants who have chosen to specialise in the technical landscape of insolvency.

IP’s must follow the law and their work is monitored by regulators to ensure that they are acting legally and appropriately. There is also ongoing regulation of IP’s to make sure they continue to be fit and proper to carry out insolvency work.

Generally, an IP will deal with either:

  • Corporate Insolvency that relates to businesses that are no longer able to maintain their financial obligations as and when they fall due (i.e. the business can’t pay the bills on time); or
  • Personal Insolvency (i.e. Bankruptcy) that applies to individuals who have debts they can’t pay off (being loans, personal credit cards, etc).

However, most IP’s will have the knowledge and experience to deal with both.

Most IP’s provide free initial consultation on particular situations but the advice from a licensed and authorised IP can make the difference between success and failure when a business or individual is in financial distress. So, a good IP should ensure that any advice provided is fully understandable and the reasons why an insolvency procedure (i.e. Creditors Voluntary Liquidation) if necessary is being recommended.

The work of an IP affects both creditors and debtors. You could say that the work of an IP is a much about people as it is about numbers. Therefore, IP’s need to have the skills to deal with creditors, debtors, banks, worried employees, anxious directors and individuals, to name a few.

Whilst much of the work by IP’s involves formal insolvency procedures, increasingly, IP’s are using their skills to restructure and turnaround businesses in Australia without the recourse of formal insolvency appointments and equally, in the current environment, where personal debts are at record levels, it is critical that individuals get the right advice about their available options to resolve their financial difficulties.

If you’re business or you are struggling financially, there are many options available and it may be difficult to choose the best one. The Insolvency Practitioners at What is Liquidation can provide you with lasting solutions that will meet your specific financial needs. With our help, we can ensure all your options will be assessed.

To learn more about the available options provided by What is Liquidation contact us via telephone 1800 647 434, via our website or schedule a free, confidential consultation.

Not to long ago, I arrived at the front door of a successful company on behalf of the Liquidator as this company director ignored a statutory demand received for approximately $8,500. By ignoring the statutory demand, the Court placed the company into Liquidation and it cost the company approximately $120,000 to overturn the Courts decision.

Let’s get down to what this is all about.  A statutory demand is a formal demand for payment of a debt owed by a company, that is issued by the Court. This type of demand must be in the prescribed form and must relate to a debt (or debts) totalling at least $2,000.

If you have received a statutory demand, it must:

  • be in writing.
  • be signed by or on behalf of the creditor.
  • correctly state the company’s name and its registered office.
  • specify a place in Australia where the debt can be paid.

The statutory demand itself provides a warning as to what may happen if the debt is not settled by you with 21 days from the date of the demand.

If you have received a statutory demand, don’t be that person who ignores it. If you ignore it, there may be significant consequences against your company and you in the form of a winding-up order. At this stage you will face up hill battle and may face Liquidation of your company.

So, once a statutory demand has been served you must either pay the debt or apply to the Court to have the statutory demand set aside (i.e. dispute the demand).

If you do not take one of these steps within 21 days, then the law assumes that your company is insolvent (that’s when your company is unable to pay all its debts when they are required to be paid). The creditor may then apply to the Court to have the company wound up (placed into Liquidation)Let me illustrate below what may happen if you ignore or don’t pay the statutory demand.

  1. The creditor seeking payment can apply to the Court to wind up your company.
  2. The Court will appoint a Liquidator to your company.
  3. At this point, you will lose control of your company to the Liquidator.
  4. The Liquidator will sell or close your business. This may result in valuable assets being lost.
  5. Any director loans will have to be paid back immediately to the Liquidator.
  6. You may be personally liable for trading your company whilst insolvent.
  7. Leases may be terminated and may cause a default with financiers.
  8. Your personal assets may be at risk and any personal guarantees provided may be called up.
  9. The Liquidator will investigate your conduct as director and report this to ASIC.

As your can see, there are some serious consequences if you cannot pay the debt in full within the 21 day time limit or you don’t have a genuine subject to dispute. Therefore, it may be prudent to negotiate a payment plan with the creditor if possible and if so, this should be done immediately and must be resolved within the 21 day period otherwise you are at risk.

If you are unable to come to some type of agreement or want to understand your position you will need to seek advice quickly. The experts at What is Liquidation have extensive knowledge in dealing statutory demands.

Contact us today on 1800 647 434 or via our website so we can help you with your available options and provide the right support dealing with the statutory demand.

The simple answer to this question is yes.

If it has been a bit of bad luck and your company has gone into Liquidation or you’re thinking of placing your company into Liquidation, whichever the scenario, company Liquidation does necessary prevent an individual from being a director of another company directly after Liquidation or in the future.

So why is there this misconception that if you liquidated your company, you can’t be a director of another company? Where the confusion may lie is understanding the Liquidators duties following the Liquidation appointment.

A Liquidator is required to investigate and prepare a report to the Australian Securities and Investments Commission (ASIC) relating to the company (in particular, the reasons for failure, insolvent trading and whether any breaches of the law).

ASIC is a government department that reviews these reports submitted by Liquidators and depending on the Liquidators findings, this may affect your ability to act as a director going forward as you may be perceived as a risk to the public in being a director of a company.

If, however, you are involved in 2 or more companies that have failed within the last 7 years, ASIC may impose a Director Banning order against you.

An ASIC banning order would relate to any or all the following:

  • Failure to exercise due care and diligence.
  • Failure to exercise good faith.
  • Improperly used your position as a director.
  • Improperly used information you had obtained as a director.

Company directors must follow proper standards and act strictly in accordance with the law. This will include not placing their personal interests ahead of those of the company.

Insolvency related director actions conducted by a director that are directly relate to the failure of the company, ASIC have the power to consider banning the director.

Directors should be mindful as to who they seek advice from when their company is experiencing financial difficulties to protect themselves from potential director disqualification.

To learn more about director disqualification contact the experts at What is Liquidation via telephone 1800 647 434, via our website or schedule a free, confidential consultation.

If you are a company director, you have probably come across the request for a personal guarantee to get a loan approved, lease contract, line of credit from a supplier or other finance. In most cases, when a personal guarantee is given, the other party will take some type of reassurance to chase you as a director personally to repay the debt if your company is insolvent (goes into Liquidation).

 Let me refresh your memory as to what a personal guarantee is: It is when a person or director of a company provides a verbal or written consent for a creditor to seek payment from them personally if the company that incurred the debt cannot or does not pay this debt.

Personal guarantees are most commonly used to secure debts for:

  • Trade supply accounts.
  • Lease contracts or hire purchases.
  • Company credit cards.
  • Company loans.

In the case you have provided any of the above personal guarantees, if your company becomes insolvent (i.e. when it cannot pay its debt as and when they are due) the implications of the personal guarantee become very real.

A personal guarantee is a serious undertaking, so here are some things, I think you should consider before providing a personal guarantee:

  • Total amount to be repaid under the personal guarantee.
  • Interest and other costs associated with the debt, finance or lease (note: final amount may be significantly higher than the original amount).
  • If anyone else is involved, do they actually have the capacity to meet their obligation? Because if they don’t you will be held liable for the whole debt.
  • Are you personally in a financial position to repay the debt.
  • Is the company in a position to pay the debt? Because if it can’t you will be held personally liable.
  • Legal, financial and commercial implications that relate to the personal guarantee.
  • Do the benefits of the debt, finance or lease outweigh the risks associated.

In addition to the above, another key consideration for you as a director when providing a personal guarantee is capping your financial liability position. Its not always possible, but where there is scope to do so, you should. In doing so, any claim against you is limited in the event of an insolvency scenario.

Banks, lenders or trade suppliers will sometimes underplay the impactions of providing a personal guarantee. So, if you are providing a personal guarantee be wary if they say it is just standard industry practice and normal part of business of securing, granting or providing what you have requested.

Not getting advice in respect to providing a personal guarantee is a frequent issue we come across and of particular concern. Getting the right advice can make real difference to how events unfold to have experts to help.

Although in most cases, banks, lenders or trade suppliers will take the risk of granting a loan, however they will want a decent safety net to cover them.

It is recommended that you seek professional advice prior to signing any personal guarantee if you have any uncertainty about your potential liability or don’t understand the effect of the terms may have on your personal financial position.

As you may be aware, a benefit of creating a company is that it is its own legal separate entity from you. This corporate structure provides protection to you as a director from the debts incurred by the company. However, if a director has been found guilty of insolvent trading, this protection in most cases will be gone. Ultimately resulting in you being personally liable to pay the debt if the company is unable.

So, if your company becomes insolvent, the company’s creditors will want to recover their debt. If the assets of your company do not achieve this, then their focus will turn towards any personal guarantees you may have provided. The appointed Liquidator has a duty to recover all the necessary assets in an attempt to pay the company’s debt (payable by way of dividend), however, in most cases there is no return (i.e. dividend) to the company’s creditors.

The implication of this is often that banks, lenders or trade suppliers will come after the directors’ personal funds until the debts are fully paid off. This may mean for you that not only has your business got some serious debt problems, but also you have personally.

A common question that we get at What is Liquidation is “What happens to my personal guarantee if I leave the company?”  In short, you’re not automatically released from the personal guarantee if you are no longer the director of the company.

Therefore, you will need to make the appropriate arrangements that your liability ends in any circumstances where the company may fail in the future.

In a worst case scenario, banks, lenders, trade suppliers could enforce the personal guarantee and the Court would grant permission to seize your assets (including your home) to repay the debt the company incurred.

It’s easy to think that insolvency and Liquidation will never be a problem for your company as director you believe in the value of your business. But speaking from experience, companies that once flourished end up in financial difficulties around Australia every year.

So as a director, be careful of any assurances (i.e. personal guarantees) you may give on hypothetical scenarios as insolvency and Liquidation is real and can sufficiently impact you on a personal level.

If you have provided a personal guarantee and your company is insolvent or looks like it might be heading that way, you should contact What is Liquidation now to discuss your available options.

Bankruptcy is a whole new ball game and best dealt with by a Trustee or AFSA. In most cases if a director has guaranteed a banking facility, lease contracts, company credit cards etc and there is insufficient company assets or an inability to save the business then options available through the Bankruptcy Act may need to be considered.

Commencing a formal appointment will not prevent you traveling overseas.

As a director and or shareholder you may be required to execute some minutes and appointment documents to 'get the ball rolling'. Provided you are fully accessible until you return, traveling overseas will not be a problem (unless you become bankrupt).

Selling your business and or assets to assist with repaying creditors is a good thing but needs to be done fairly with a market value as your aim. Appointing a liquidator or administrator to deal with the 'back end' of the transaction is a good strategy to avoid criticism by company creditors and in some cases the sale can be approved at a meeting of creditors.

It's hard to deal with this in brief. In most cases, company debts are not automatically the directors' personal debts, but there are some circumstances where they can be eg guarantees given on trade accounts or claims for trading whilst insolvent. Early action by an insolvency expert is the key to avoid losing your home.

In most cases a formal appointment should not require a significant amount of personal funds to commence an appointment. At law, a liquidator or administrator is entitled to be remunerated from realisation of company assets. When the company has no assets it may be required to enter into a fixed cost agreement with the appointee.

If your 'house is in order' (ie management accounts up to date, all creditor claims are known etc) and all directors and in some cases shareholders agree on the best course of action to deal with the company's financial issues, an appointment can happen within an hour.

A good insolvency expert will not force you to appoint, after all it's your company and your decision to make so feel free to seek counsel in your accountant, solicitor and family members.

Generally speaking, the sooner you appoint the less likely you are going to expose yourself personally and can avoid making a decision that does not deal with the company's financial issues in entirety.