Insolvency – Corporate

If a company is in financial difficulty, its shareholders, creditors or the court can put the company into liquidation. The purpose of liquidation of an insolvent company is to have an independent and suitably qualified person (the liquidator) take control of the company so that its affairs can be wound up in an orderly and fair way for the benefit of all creditors. When a company is being liquidated because it is insolvent, the liquidator has a duty to all of the company’s creditors.

The liquidator’s role is to:

• collect, protect and realise the company’s assets;
•  investigate and report to creditors the company’s affairs, including any unfair preferences which may be recoverable, any non commercial transactions which may be set aside, and any possible claims against the company’s officers;
•  enquire into the failure of the company and possible offences by people involved with the company and report to ASIC;
•  after paying the costs of the liquidation, distribute the proceeds of realisation – first to priority creditors, including employees, then to unsecured creditors, and then obtain independent legal advice on the merits of the liquidator’s claim before repaying any money.

Types of corporate liquidation

Depending upon the circumstances and the application of very specific criteria, liquidation may be undertaken in a number of ways:

Creditors Voluntary Liquidation

To wind up the affairs of the company where the directors have determined that due to the insolvency of the business they no longer wish to continue trading.

A Creditors Voluntary Liquidation is also possible where a company has been placed into voluntary administration and a proposal for a Deed of Company Arrangement has not been accepted by creditors.

Benefits include:

• The appointment can be made with an almost immediate effect in most circumstances in a Company whereby the shareholdings are closely held.
• Allows for an independent insolvency practitioner to investigate the affairs of the company, make recoveries of non commercial transactions, realise company assets and make a distribution to creditors in accordance with the Corporations Act.

Condon Associates can advise clients whether this is the most appropriate mechanism to deal with the company’s debts and, if so, can act as liquidator of the company.

Receivership

A receiver is usually appointed to recover funds owing to a secured creditor. The receiver can either continue to trade-on the business or realise some or all of the company’s assets to repay the secured creditor.

Benefits include:

• Appointment is performed by the secured creditor pursuant to the provisions of its charge document.
• Secured creditor is able to recover their debt.

Condon Associates have significant experience in this area and we have successfully been able to recover monies owed to secured creditors in cases where it was thought this would not be possible.

In addition, Condon Associates are able to offer clients advice in relation to the most appropriate means of advancing monies to businesses while effectively securing their financial interest.

Official liquidation

To wind up the affairs of an insolvent company by way of an application to the court. The most common reason that a company is wound up by the court is because it has failed to comply with the demands of an unsecured creditor.

Benefits include:

• Provides a mechanism for creditors to wind up companies who have not paid their debts
• The official liquidator takes possession and control of the company’s assets for the purpose of realising the maximum amount for creditors
• Investigates the company’s affairs to determine if there are any further assets to be realised or any recovery actions that may be commenced.

Condon Associates can provide specialised assistance during the recovery process and are qualified to act regarding liquidations of this nature.

Provisional liquidation

This form of court appointed liquidator is usually used in instances where there is some aspect of urgency or concern for the protection of company assets.

There is no necessity for the company to be wound up and it is possible, albeit uncommon, for the company to be returned to the directors’ care.

The appointment is usually made on the application of a creditor, shareholder or director.

Benefits include:

• The provisional liquidator takes possession and control of the assets and affairs of the company. Assets that are in danger are therefore secured.
•  An investigation of the company’s affairs is conducted and the results of which are reported to the court.
•  The court may then appoint an official liquidator or return the control of the company to the directors

Deregistration

If a company is no longer carrying on a business and meets certain specific criteria, an application may be lodged with the Australian Securities and Investments Commission for deregistration.

The directors or the shareholders are able to apply for the deregistration, but to be eligible, the company must meet various criteria such as not having any liabilities and having agreement amongst all shareholders.

Benefits include:

• Cost savings associated with not conducting investigations into the affairs of the company

Condon Associates can arrange for the inexpensive deregistration of a company.