Written by Robert Kite in November, 2008

In the previous article, I have made reference to the recent changes to the Corporations Act (“the Act”), and provided some detailed notes on the impact of same with respect to Voluntary Administrations. The purpose of this article will discuss the changes to the Corporations Act with respect to Creditors Voluntary Liquidations.

It shouldn’t come as a shock to most of the people reading this article that the “straws” which sometimes “break the camel’s back” with respect to determining the appointment of an Insolvency Practitioner is quite often a Director Penalty Notice from the Australian Taxation Office. Such notices usually give the Director 14 days within which to appoint a Liquidator, appoint an Administrator, pay out the debt in full, or come to some arrangement with the ATO. In the absence of taking one of the four options, the ATO will then have the necessary powers to prosecute the Director, to recover monies outstanding for PAYG monies withheld that were not remitted to the ATO.

Under the old provisions of the Corporations Act, the fourteen day time frame provided wasn’t necessarily sufficient enough to arrange for the appointment of a Liquidator of a Creditor’s Voluntary Liquidation. This was due to the time in which it usually took the client to speak to their professional adviser, and then subsequently speak to an Insolvency Practitioner. Following the delay of time in which this process takes, there generally was not enough time remaining (within the fourteen day provided within the notice by the Australian Taxation Office) to affect the appointment of a Liquidator. This is due to the fact that under the old provisions, certain notices needed to be provided, and certain meetings needed to be held within proximity of each other. This presented an almost immediate appointment of a Liquidator to the Company.

In many of these circumstances, the Directors appoint an Administrator (as an immediate appointment can be effected), to attempt to minimise their personal liability. This however has the effect of the additional resources and additional costs that could otherwise been avoided if a more immediate appointment of a Liquidator could have been effected.

A substantial change to the Corporations Act relates to the manner in which the appointment of a Liquidator can now be effected. In order to effect the appointment of a Liquidator in a Creditors Voluntary Liquidation, a meeting of Directors is first convened, at which it is resolved that the company is insolvent and that a meeting of shareholders should be called to consider the placement of the company into Liquidation.

It is only following the resolution of shareholders, that the company is placed into Liquidation (note that this remains the same under both the old and new provisions of the Act). Under the old provisions of the Act, there was a requirement that a Meeting of Creditors be held within 24 hours of the Meeting of Members. This in itself does not present a problem, except for the fact that Creditors are entitled to a minimum of seven days notice of the Meeting of Creditors. Therefore, the actual timing of the appointment of the Liquidator is held up, by the proximity of the Meeting of Creditors.

The recent amendments to the Corporations Act have changed this process. A similar process is still utilised in that after a Meeting of Directors, a Meeting of Shareholders is still required, however, the Meeting of Creditors is now required to be held within a period of 11 days following the appointment of the Liquidator. As there is no longer the obligation to hold the Meeting of Creditors within 1 day of the appointment of the Liquidator, the Meeting of Shareholders can actually be brought forward, and the Meeting of Creditors held at a later time.

It is acknowledged that there are certain notice requirements required for considering a special resolution to place the company into Creditors Voluntary Liquidation. In closely held companies, the new provisions of the Corporation Act allow for a far quicker appointment of a Liquidator, and in many instances, may remove the need, or desire to use a Voluntary Administration to effect the Liquidation of the company.

This not only has a cost saving due to the reduced professional costs of the insolvency practitioner, but can also result in bringing the matter to a conclusion at an earlier possible date.

Annual Meeting of Members and Creditors

The Liquidator is required to convene an Annual Meeting of Members and Creditors for Creditors Voluntary Liquidations which continue for longer than 12 months.

In many cases, these meetings are not attended, and additional resources are utilised by the Liquidators in not only convening the meetings, but also attending to the lodgment of minutes, expensive advertisements calling the meetings, and any adjournments of the meeting resulting in subsequent minutes and professional resources.

A recent change to the Act (a welcome change) is such that there is no longer the requirement should the Liquidator not deem it necessary not to hold an Annual General Meeting. The Liquidator can simply forward a Report to Creditors advising the Creditors of the conduct of the Liquidation without the need for any such meeting.

An alternative is such that the Liquidator may lodge such a Report with ASIC, and then forward a Circular to Creditors advising them that such a Report has been prepared and is available free of charge from the Liquidator should they wish to obtain a copy of the Report.

These changes will obviously prevent the incurring of further unnecessary advertising costs, and/or printing costs for any of those Creditors who did not wish to receive any such Reports and/or the resources involved in posting such reports to Creditors.

For any information as to how the recent changes to the Corporations Act may affect, or benefit you or your clients, please do not hesitate to contact this office.