Check Out Our Liquidation FAQs
How Long does Company Liquidation Last?
The time it takes to complete a Company Liquidation will vary depending on how complicated the company’s affairs are. There is no set time limit with which the Company Liquidation needs to be completed and as such, it can range from 12 to 18 months (for an average-sized company that is fairly uncomplicated) to longer (if the company’s affairs are complex). The main factors that affect the time-frame of the Liquidation are the structure of the company, its dealings prior to being liquidated and whether it will be necessary to litigate.
What is my Duty as a Director if my Business Enters Company Liquidation?
You have the same duties and obligations during the Company Liquidation period as you had prior to the Liquidator’s appointment. In addition, you must:
- Provide the Liquidator with a report as to the affairs of the company,
- Provide all of the company’s books and records to the Liquidator, and
- Reasonably assist the Liquidator in carrying out his or her role.
- Refusing to cooperate with the Liquidator carries a number of offence provisions.
When a Business goes into Company Liquidation, Who is Paid First?
The priority for payment of proceeds in a Company Liquidation is generally as follows:
- Costs and expenses of the Liquidation, including the Liquidator’s fees,
- Secured creditors,
- Employee claims, and
- Unsecured creditors.
Before any proceeds are paid to a creditor for their debt or claim, they will need to give the Liquidator sufficient information to prove their debt. Payments to creditors in a Liquidation are known as dividends. Each category of creditor is paid in full before the next category is paid. If there are insufficient funds to pay a category in full, the available funds are paid on a pro rata basis and the next category or categories will not be paid. Unfortunately, there is no guarantee creditors will be paid at all. This is the case when there is no money left in your company to satisfy creditor claims.
Can I keep my cars which are in the company?
It’s common for directors’ personal cars to be in their company and subject to finance agreements. This often causes a delay in directors going ahead with an insolvency appointment due to the fear of losing their car. However, this inaction can lead to worse outcomes.
Many financiers will allow your company car to be refinanced into your name personally or possibly into an associated company before liquidation. Where this isn’t possible, you may need to sell your financed vehicle to pay out the existing loan. You can then look to purchase a new vehicle personally or in a related company.
Alternatively, liquidators have two other options:
- If your car is worth more than the finance, the liquidator can sell it to you for fair value and you can pay out the finance; or
- If it’s worth less than the finance payout, the liquidator will disclaim the vehicle (meaning the company has no further interest in it). It’s then down to the financier and you to discuss arrangements for you to keep the vehicle.
How do I deal with a liquidator‘s claims against me?
A liquidator may have various claims against you, as covered above. Most often these claims are for director loan accounts or insolvent trading. But claims are also available to the liquidator against a director for breaches of directors’ duties or voidable transactions.
If you’re worried a liquidator will pursue claims against you or make you bankrupt, it can be very difficult to proceed with appointing one, even if it’s the right thing to do.
In reality, most liquidator claims are resolved without ending up in court. And just trading on, or delaying action, usually makes things worse. The longer your company trades while insolvent, the greater the potential claims the liquidator, the ATO and personal guarantee creditors will have against you as director.
It’s recommended that you seek legal advice regarding your options to deal with any claim against you. Failure to properly address a claim may result in court action and bankruptcy.
As with any legal claim, there are generally five options to deal with a liquidator’s claims:
- Pay the claim in full
- Offer to settle the claim for less than the full amount
- Dispute the claim
- Provide details of your personal financial position to help the liquidator in assessing if you have the financial capacity to meet a successful claim
- Do nothing, in which case the liquidator will decide whether to pursue the claim further
Individual liquidators have varying approaches to pursuing legal claims. However, where claims aren’t pursued, this is most often on commercial grounds. That means there may not be any expected benefit to your company and its creditors for pursuing the claim, or the benefit may be limited.
There are various other factors affecting whether a claim is pursued, which the liquidator will consider in each case. A liquidator’s primary role is to act in the best interests of creditors, and, therefore, any step a liquidator takes has that duty in mind.
It’s important to note that creditors may fund a liquidator to pursue claims, or they may obtain the liquidator’s consent to pursue insolvent trading for their own debt. Additionally, a liquidator may assign any claim they have to a creditor or other party.
Where you’re concerned about the potential claims that may arise in liquidation, you may consider whether to raise finance from the equity in your property or other sources to avoid it. Such options may include financing a restructuring plan or proposing a deed of company arrangement to wind down the company’s affairs without liquidation.
Being clear on what you can and can’t and should and shouldn’t do if you’re in financial hot water, and understanding your requirements for being director, can ease the stress and help you see more clearly. The overriding advice is to take action straight away – doing this will help lead to best outcomes for you and your business.
Will I go bankrupt and lose my house if I appoint a liquidator?
No. Your company and personal financial affairs are separate. Appointing a liquidator to your company doesn’t directly impact your personal finances or mean you’ll go bankrupt personally. However, while company debts generally remain with your company, there are several situations where you can be held personally liable for your company’s debts. Some of the most common are: Insolvent trading – Insolvent trading is when your company continues trading while insolvent and you run up debts you cannot pay.
It’s important to seek assistance if your company is struggling to pay its debts. Superannuation and BAS debts owed to the ATO – A director can be held personally liable for these debts under an ATO director penalty notice. Liquidating your company can avoid personal liability for these debts as long as BAS and super guarantee charge returns have been lodged on time. Personal guarantee debts – Often directors are required to guarantee their company will pay its debts. Such agreements often include premises leases with landlords, trade suppliers and loan and finance debts. Director loan account balances – If you take your pay as drawings, this balance is recorded as a loan account. It may therefore be recoverable by a liquidator. This is a common tax-saving setup.
There are also several less common claims you can be held personally liable for, including illegal phoenix activity and unfair dismissal. If you’ve provided guarantees or keep trading and become personally liable for the above debts, you may be forced to refinance or sell your house to pay them – or look at personal insolvency options, such as bankruptcy. It’s important to remember that by continuing to trade without professional advice and a restructuring plan, you’re probably making your situation worse.
Will Company Liquidation Affect my Credit Rating?
Credit reporting bureaus do keep track of companies that enter Company Liquidation and the names of the directors of those companies. The ‘mark’ on your credit report is there, but it is unlikely to affect you if you’re applying for personal credit. For example, if you want to apply for a credit card or personal loan, it generally won’t be an issue. However, if you want to apply for a business loan, it is much more likely the ‘mark’ will be found.