Company Closed Quickly and Concerned Director Gets Finance Even with Active Liquidation

An accountant called our Insolvency Hotline asking for advice about a growing trend they were noticing amongst their clients. They had noticed a number of their client’s companies had ceased trading due to Covid but there was no pressure being applied by creditors to force them to take further action.

One in particular was a café that ceased trading five months prior. They walked away from the premises and left the assets behind. They owed $60k to the tax office, but they hadn’t heard anything from them since before they ceased trading. There were no other debts of significance.

The accountant said the Director was wary of how Liquidation might affect their credit rating because they were planning on borrowing money to buy a house in the next 12 months.

We advised that company liquidation was a good idea in this case because they company had not traded in some time, and the ATO was not pursuing them aggressively.

 In circumstances where a company has not traded in some time, it makes for a smoother liquidation process because pending issues such as debtor collection or unknown creditors have had some time to settle.

At the time the ATO were going slow on debt pursuit due to Covid, so the Liquidation was unlikely to attract their attention. We looked into the make-up of the tax debt, and we found that there was some Pay As You Go Withholding that had not been reported in the 3 month grace period. That gave the ATO the ability to serve a Director Penalty Notice if they choose to. We were careful to explain that we couldn’t guarantee that the ATO wouldn’t pursue the director personally, but we hadn’t heard of it happening for quite some time.

We explained we would investigate the whereabouts of the assets, but it wasn’t a big issue because it is difficult to get much return for café assets in the pandemic. More often than not we abandon them because they cost more to collect than what we can sell them for.

Our upfront advice was that because this seemed like a straightforward case, we could do it for a low upfront fee, and we expected to be able to have the process completed reasonably quickly.

The outcome was that we were able to have the liquidation process completed in just under 6 months, much faster than the average of our competitors (our research shows the average liquidation duration is 12 months). It happened that at the four month stage in the process the Director was starting to shop around to borrow money. Due to the fact that by this stage our investigation was complete, we had reported to the regulator and they had decided not to pursue any actions, we were able to provide the director a letter stating these facts. By showing this letter to lenders they were able to secure a home loan even with an active liquidation on their record.