Pre Liquidation Checklist for Directors and Advisers

There are about 10,000 company insolvencies a year.  You’d like to think that Directors and Advisers thought through the process prior to getting on the slippery slide, but that is not always the case.  Hence, we have prepared a concise Checklist of matters for Directors and Advisers to consider when liquidation seems the likely outcome.  You can get a copy of our downloadable Checklist here.  It’s in a handy format.  But to give you a taste, here is a list of some of the questions and memory joggers on the Checklist:

Trading

• If the company is still trading, how many locations does it trade from?
• How many staff do you now employ?

Winding-Up

• The usual process for winding-up a business is to address the practical and physical aspects first. In that situation it would be necessary to:  Shut the doors; Stop buying new stock and supplies; Terminate the employment of staff;  Notify the landlord; Notify creditors; Sell the remaining assets of the company and bank the proceeds to the company bank account.
• Are you able to undertake those tasks yourself or will it be necessary to have assistance, probably a Registered Liquidator?

Assets

• Do you have an asset listing?
• Have you attempted to find a buyer for the whole business, or specific assets?

Liabilities

• Do you have a list of all creditors and the total owed?

Tax Issues

• Have you been lodging the BASs on time?
• Does the company’s Running Account with the ATO include amounts for PAYG or Superannuation?  (Note: you can be personally liable for that debt)

Personal Guarantees

• It is usual for a Bank to require a Personal Guarantee from a director for any Bank lending or facilities. How much do you owe the Bank and do they have security over your house?
• It is usual for a director to sign a Personal Guarantee for any unpaid rent.  How long is left to run on the premises lease and how much is outstanding at present?
• Often trade suppliers will have required a Personal Guarantee from a director as a term of trade. Did you sign any such Terms of Trade or any other specific Personal Guarantees?

Insolvent Trading

• Consider when you first thought the company might be insolvent and whether the company incurred any new debts after that time?

Liquidation

• If it turns out you need to appoint a Liquidator, is it likely all directors and shareholders will be in agreement with that approach?
•  Have you been the director of any other companies that have entered liquidation in the last seven years?

Financial Accounts

• When was the last set of financial accounts prepared and for what period?
• Do the accounts show Director’s Drawings or “Director Loans” in the assets section of the Balance Sheet?

I don’t have the space, or typing speed to explain why, but there are good reasons for all of the above questions!