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Worried about being a Director of a company entering liquidation – what are the effects?

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At Dissolve, we receive hundreds of calls a week  – they are usually from Directors of companies in financial difficulty and they have a common theme……. irrespective of the actual financial circumstances of the company, the director is always worried about the consequences of a liquidation or a voluntary administration on them personally.  I recently contributed a Guest Post on SmartCompany on this topic and you can read the full post here.  But let me give you a briefing.

I like to divide up the worry areas into some neat boxes as follows:

  • You are not Robinson Crusoe – there are about 10,000 corporate insolvencies a year and so more than 10,000 worried directors a year.
  • Liquidators report a lot of offences – around 7,000 of the liquidations have reportable offences,  most commonly insolvent trading, general breaches of directors duties and failure to keep books and records.
  • In the last six months of 2013, ASIC took 219 actions in the corporate insolvency world – not many!
  • Included in those actions were 32 prosecutions to ban a director from managing a corporation.
  • The liquidator is more likely to cause a director some pain than ASIC – however, there are no reliable statistics on how often a liquidator takes action against a director.  But remember, whereas ASIC will be looking for blood (offences), the Liquidator will be looking for money.
  • A liquidation does cause a mark on your personal credit record but it is not akin to Bankruptcy.  In fact, it is unlikely to affect any personal dealings such as Credit Card and home loan applications.  However, it could arise if you are seeking a business loan.

So, yes, there are some things to worry about there, but probably not as many as most directors fear.  Most importantly, directors usually feel lost when their company faces insolvency – they don’t fully understand the options, the processes or the likely outcomes.  The path forward for directors is actually a well trodden path.  Appointing a liquidator (usually under a Creditors Voluntary Liquidation) is easy and quick and at the very least, problems are brought to a head and a director can move on.

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