Who’d want to be an Official Liquidator?
A while ago, ARITA, the professional organisation for insolvency practitioners, commissioned a study called “An analysis of Official Liquidations in Australia”. The results might surprise those who think that being an Official Liquidator is a path to easy money.
The study was commissioned to research and analyse the nature of insolvency administrations undertaken by Official Liquidators as a result of Court Appointments. It was done by way of survey to all ARITA Members who are Registered Liquidators. The data analysed is only a sample of all Official Liquidations so it is a long way from being a definitive analysis, but the results ring true for what I would have expected based on my experience.
So one of the outcomes was an analysis of what a “typical” Official Liquidation would look like. Here ’tis:
- The ATO would be the Petitioning Creditor (52% of matters);
- The Official Liquidation would take seven to 12 months from start to finish (I reckon survey respondents may have overestimated their efficiency on this one);
- The company would be in the construction industry (29% of matters, followed by “Other” which I have always found somewhat uninformative);
- The company’s turnover would be less than $100,000;
- It would have few employees (somewhere between nil and five);
- Unsecured Creditors would be about $250,000;
- Here’s the interesting one…… it will have assets of …. $nil (that occurs in 62% of Official Liquidations);
- And so there will be no dividend to creditors.
And to the economics for Official Liquidators. The average time on the clock by the Official Liquidator and their staff is $18,000. The average recovery rate for an Official Liquidator’s disbursements and remuneration is 29% and 15% respectively. Ouch.
The item that does hurt Official Liquidators is the Out-of-Pocket costs incurred in every liquidation. That is for a variety of advertisements and searches that need to be done. The study estimates that Official Liquidators personally fund disbursements of around $1.4 million annually (that’s for everyone, not each!).
I suppose we have to assume that the ones that do have funds are somewhat profitable. That does account for the high charge rates for insolvency practitioners – they are materially more than those charged by say, a Chartered Accountant in a similarly sized firm.