Liquidation recipes
The Liquidation Process – it can be fast
Up until a few years ago, the process to appoint a liquidator was quite clunky. The law changed in 2010 and it has allowed us to streamline our systems - now we can get the appointment process in a Creditors Voluntary Liquidation done in a few hours. Well that’s the case for Dissolve anyway, maybe not others! After appointment, there is a lot of work the liquidator has to do, but the directors and shareholders don’t have to worry about most of that. I’ve explained below the full process of a Creditors Voluntary Liquidation and highlighted where the director and shareholders are involved. Click Here To Read More
Liquidation and Director Banning – what are the chances?
We are often asked by a director whether or not they will be banned as a director if their company goes into liquidation. Be aware that there is nothing illegal about simply being a director of a company that enters into liquidation and there is no automatic banning as a director. But it can happen.
Circumstances resulting in Director Banning
There is provision under the Corporations Act (Section 206F) for ASIC to disqualify a person from managing a corporation for up to 5 years if the person has been an officer of two or more companies that have entered liquidation within the previous seven years. ASIC is required to consider a few things in determining whether or not it should ban a person from acting as a director:
- whether any of the companies were related to one another;
- the person’s conduct in relation to the management of the company; and
- whether the disqualification would be in the public interest.
Also, if a person is convicted of an offence that is a contravention of the Corporations Act and is punishable by imprisonment for a period of greater than 12 months, then the person is automatically disqualified from acting as a director of a company for the same period of time (Section 206B). Remember, it is quite a rare thing for a Director to be convicted of an Offence under the Corporations Act.
What happens in the real world
That’s the law above, but it is a little different in practice. Remembering that there are over 10,000 company liquidations every year and in hundreds of those cases the situation will arise where a director has been a director of two or more companies entering liquidation. It is simply beyond ASIC’s resources to seek to ban every director that could be banned. Every year there are a couple of hundred director bannings out of the 10,000 or so company liquidations. So in practice ASIC will look at a director banning where there are a number, probably well in excess of two, “strikes” against a directors name.
Directors should rightly be concerned about their ability to act as a director in the future. However, if it is the first time a director has been a director of a company that enters liquidation, ASIC cannot seek to ban the person unless there are specific offences. If a director has multiple “strikes” as a director then it is possible that they will be banned by ASIC.
Corporate Insolvency numbers hit record high
ASIC have recently released their monthly corporate insolvency statistics. They reveal that February 2012 was the worst month ever for corporate insolvencies, and that last years floods in Queensland are now showing their effect on small business with record numbers of liquidations.
Bad News Continues in 2012 – Business Stress Report
Every quarter here at Dissolve we break down the most telling corporate insolvency, liquidation and restructuring statistics into our Business Stress Report. Our latest report reveals that the bad news for corporate Australia is continuing into 2012. January 2012 is another record high month for the number of corporate insolvencies and the cost of those insolvencies continues to run at over four times pre-GFC levels. You can download the full Report here and I’ve given a summary below. Click Here To Read More
Bad Liquidator
In case you’ve missed it in the media, liquidators are bad (apparently). I’ve provided details in a previous blog about ASIC’s supervision of liquidators. I’ll disagree with the general proposition that liquidators are bad but there is a bad liquidator who has been brought down by ASIC and the Courts. Check out below the details on that guy and some other ASIC actions against liquidators. Click Here To Read More
December 2011 Corporate Insolvency Statistics Released
You may have got our early call last month that 2011 would be the worst year ever for insolvency numbers – well ASIC has just released the corporate insolvency statistics for December 2011 and they confirm our earlier prediction. They show that although December 2011 is down from November 2011, overall 2011 was the highest year on record for corporate insolvencies with 10,481 companies entering some form of liquidation, administration or receivership. This represents a 9.2% increase over the previous highest which was 9, 601 in 2010.
2011 Worst Year on Record for Corporate Insolvencies – Business Stress Report
Every quarter here at Dissolve we break down the most telling corporate insolvency, liquidation and restructuring statistics into our Business Stress Report. Our latest report reveals that 2011 was the worst year on record for corporate insolvencies. You can download the full Report here and I’ve given a summary below.
ASIC recently released statistics for insolvencies for November 2011 and the 9,718 corporate insolvencies in the 11 months to November 2011 is 10% higher than for the same period in 2010. The 11 months to November 2011 has already exceeded the full calendar year of 2010 which was the previous highest full year.
Interestingly, November 2011 itself, with 983 insolvencies, was up 17% on November 2010 but short of the highest ever November which was in 2008.
The typical company insolvency – size, sector, creditors, offences and outcomes
Let me dramatically overgeneralise. If your company went into liquidation in the year to June 2011 then, most likely, it will have been in the construction game, had fewer than 5 employees, assets of less than $10,000, you will have committed an offence by trading while insolvent, will owe creditors less than $250,000, including the tax man, your liquidator will pay no dividend to unsecured creditors and ASIC will not pursue you for the offences you committed. Well, actually that’s a description of the most common statistical categories for companies entering liquidation. Click Here To Read More
More records set – September insolvency statistics released
ASIC have recently released the insolvency statistics for September 2011. They reveal the number of corporate insolvencies in September 2011 is down slightly from August 2011 but it has still set a number of “highest ever” records for 2011. Liquidators in Tasmania and Western Australia are busy with further large increases in the number of appointments in those states.
The key statistics are:
- The number of companies entering some form of insolvency administration in the month of September 2011 was 991. That figure is down slightly from August 2011 which was 1,049. And here is an interesting comparison – the insolvency number for September 2007 (so pre-GFC) was 557.
- The September insolvencies are the highest on record for a September and continues the trend for the calendar year with six of the nine months of 2011 being the highest ever for each of those months.
- The rolling year to September 2011 has seen 10,228 insolvencies which is the highest yearly total since records have been kept.
- Geographically, the bad news continues in Tasmania and WA this calendar year – Tasmanian insolvencies have increased 94% when compared to the average of the same period over the previous 5 years and WA insolvencies are up 71%.
Liquidators – in defence of ASIC’s supervision
ASIC has copped some stick regarding its supervision of liquidators during the last year or two. And yes, there are some bad apples involved in acts ranging from fraud (thank you Stuart Ariff) to overcharging. But not all liquidators are bad – most of us are quite decent! The most common complaint against liquidators is overcharging and at Dissolve we are trying to move those goal post as we do the vast majority of our liquidations at a fixed fee (yes, really).
But I actually want to say a good word for the Regulator and its supervision of liquidators - ASIC really is quite active in supervising the insolvency profession. Below is a long list of the care and attention us liquidators receive from ASIC.
