FAQs

If you have receved a Director Penalty Notcie from the Australian Taxation Office you should be very concerned.  It is a Notice the Tax Office serves when your company owes tax and if you don't respond appropriately within 14 days you will become personally liable for the company tax debt.  There are a lot of issues to consider if you have received a Director Penalty Notice.  We have dedicated a page to the topic at Director Penalty Notice but we suggest you give us a call to discuss your options.

Insolvent Trading is a term used in the Corporations Act - if your company is insolvent and it continues to incur new debt then a Director can be held personally liable fo those new debts.   The Act is designed that way to make directors take action if there is a possibility of insolvency.  A range of options is available to directors who suspect insolvency.  It is an important area of the law so we have lots of information at our page Insolvent Trading or you can visit our sister site, Restructuring Works, and take a quick test at Is my company insolvent?

Members Voluntary Liquidation is for solvent companies - that is a company that can pay all of its debts within 12 months.  A Creditors Voluntary Liquidation is for insolvent companies - that is where the company can not pay all of its debts as they fall due.  Solvent -v- Insolvent is a complicated area of the law.  So if you are not sure of your company is solvent or insolvent try the quick test at our sister site, Restructuring Works, where you can ask Is my company Insolvent?

A Voluntary Administration is a type of administration designed to restructure a company.  That is to save an insolvent company.  So it is an alternative to Creditors Voluntary Liquidation, which is designed to close and wind up a company's affairs.  It is confusing, so if you are not sure whether you need a Voluntary Administration, Creditors Voluntary Liquidation, Members Voluntary Liquidation or some other solution we suggest you try the test Ask IRA! at our sister site, Restructuring Works.  IRA is our Interactive Restructuring Advisor and so IRA will ask four questions and diagnose your situation and ifnrom you of the solutions available. 

For a person to act as a Liquidator in a Creditors Voluntary Liquidation (for insolvent companies) they must be a Registered Liquidator.  So they will be registered at ASIC and ASIC supervises their actions and conducts.  Of course, we have Registered Liquidators available to help you at Dissolve.  The requirements as to who can act as a Liquidator in a Members Voluntary Liquidation (for solvent companies) are a bit more complicated but in the vast majority of cases the person is a Registered Liquidator - we explain more on this at Who can act as Liquidator?

Credit Reporting Agencies do keep track of companies that enter Creditors Voluntary Liquidation (for insolvent companies) and the names of the directors of those companies.  When someone does a personal name search at a Credit Reporting Agency they will therefore obtain details of any companies that have entered liquidation while you were a director.  So what can you do?  Very little.  But remember that many prominent and well respected members of the business community have been in this situation.  Being a director of a company that enters Members Voluntary Liquidation (for solvent companies) will not affect your credit rating.

The general rule is that a director is not liable for a company’s debts.  However, there a few ways you can become liable.  Many creditors will use their commercial power to obtain your personal guarantee of the company’s debt to them.  In particular, the bank will seek personal guarantees from directors wherever they can as will many lessors and some powerful trade creditors.  Also, when a company is in financial distress, your duty of care can easily extend to new creditors by operation of various laws.  It is a complicated area of the law and you do not want to make a mistake.  If you are concerned you should call us to discuss your situation.  If you want to read more try our page on Insolvent Trading and Director Penalty Notices.

You will not be automatically disqualified if you are a director of a company that goes into liquidation.  But it can happen.  ASIC can disqualify someone from acting as a director if they have been an officer of two or more companies within a seven year period and those companies paid a dividend of less than 50 cents in the dollar to unsecured creditors.  In some cases ASIC can apply to Court to disqualify a person from acting as a director for 20 years if it can show that the way in which the companies were managed contributed to the failure of the companies.

A Liquidator has a wide range of responsibilities.  In its simplest form, a Liquidator replaces the directors and sets about winding up the affairs of a company.  So the liquidator's role is to realise the assets of the company and to distribute those proceeds in accordance with the provisions of the Corporations Act.  The Liquidator is also required to conduct some investigations into a company’s affairs and report offences.

If at any time during a Members' Voluntary Liquidation (for solvent companies) the liquidator forms the opinion that the company will not be able to pay its debts in full, they must call a meeting of creditors by giving each creditor not less than seven days notice by post, and advertise the meeting.  At the meeting a statement of assets and liabilities must be presented to the creditors.  The liquidation will then proceed as a Creditors Voluntary Liquidation.  In this situation, there will be a significant shift in the focus of the liquidation as the liquidator will be required to review a much wider list of matters such as directors’ conduct and possible recovery actions.  Alternatively, if the company is insolvent the liquidator may appoint a Voluntary Administrator.  The administration would then proceed as a voluntary administration.  This course of action would be chosen if it was considered that the company should be rehabilitated in some way.  However, as the company's business has probably already been disposed of prior to the members voluntary liquidation, the conversion to a voluntary administration would be relatively rare.

The simple answer is “yes” but that will be the case in only limited circumstances.  Sometimes a company has missed the notices from ASIC stating ASIC’s intention to deregister the company or for some reason someone may wish for a company that has been liquidated to be reinstated.  When a company becomes deregistered, it is no longer recorded on ASIC’s database as a registered company and is therefore unable to trade or take any action as a body corporate.  Reinstatement is possible in limited circumstances.  Reinstatement returns the company to registered status as if it were never deregistered.  There are two different methods to request the reinstatement of a company:

1. Application to ASIC

If there are grounds to believe that the deregistration was incorrect, ASIC can reinstate the registration of a company if it is satisfied that the company should not have been deregistered.  However it is not enough just for the reinstatement to be convenient for the company.  For an application for reinstatement to be considered, a company must be able to demonstrate relevant facts to support that the company should not have been deregistered. For companies deregistered by ASIC for not lodging annual returns or returns of particulars or for not paying review fees, the company must be able to provide valid proof that will demonstrate that there was a procedural defect or oversight in the procedure, leading to the deregistration or the company was carrying on business or was in operation at the time it was deregistered.

For companies deregistered voluntarily or wound up by way of liquidation, the company must be able to provide valid proof that will demonstrate that there was a procedural defect or oversight in the procedure leading to the deregistration. 

2. Application to Court

If you cannot meet the requirements to apply to ASIC for the reinstatement of a company, an interested party can apply to either the Federal Court of Australia or the Supreme Court of one of the States or Territories.  People who feel disadvantaged by the deregistration of the company (e.g. creditors, other bodies taking legal action against the company, a former liquidator) may also apply to the Court for the reinstatement of the company. 

The Court can make an order that ASIC reinstate a company upon being satisfied that the company should be reinstated. The Court may also make an order validating acts between deregistration and reinstatement, and any other order it considers appropriate.

At Dissolve we are experienced in applications for reinstatement and we would be happy to lead you through the process.

In the past it was common practice for a company to turn to its auditors for advice on corporate simplification and for a partner of the audit firm to act as liquidator of a company within the group.  In recent years there have been a number of laws and ethical pronouncements of professional bodies that restrict the services an auditor can provide to an audit client.  The pronouncements of the professional bodies and the laws of various jurisdictions are quite complex.  Dissolve has the following view:

• If a subsidiary company is being liquidated and it has assets of any value then neither the auditor nor a partner of the auditor should act as the liquidator.  The principle underlying this view is that an auditor should never conduct transactions on behalf of an audit client or enter into transactions with an audit client as the counterparty.
• If a company is registered with the SEC in the USA then an accounting firm that is the auditor of the group should not allow another partner of that firm to act as liquidator irrespective of the value of any assets remaining in the company.