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Creditors voluntary Liquidation

Director and Members determine a Voluntary Liquidation

 

A voluntary liquidation, is when the director and members have determined that the company is likely to become insolvent.

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Therefore to avoid being accused of trading while insolvent the director nominates to liquidate.

 

This also helps to defend any action taken by creditors, namely the ATO wanting to issue a Directors Penalty Notice.

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A voluntary liquidation happens when:

  • The shareholders and the director of an insolvent company resolve to appoint a liquidator to the company; or

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  • An appointed voluntary administrator of a company may also nominate to liquidate and take on the role as an Administrator.

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  • An Administrator must also check the preference of any payments made to creditors, uncommercial transactions entered into by the company and all matters that give rise to potential recovery action by a Liquidator;

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  • If the company is trading whilst insolvent and what exposure the Administrator has if they allow the company to trade and:

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  • Investigate any offences which ought to be reported to the Australian Securities & Investments.

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There are benefits for adopting to voluntary liquidate, including:

  • Section 588GA of the Corporations Act 2001 (Cth) provides a 'Safe Harbour' from civil insolvent trading provisions while a company is attempting to restructure or turnaround its financial position. (iv) when an administrator or liquidator is appointed to the company.

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  • It should limit the director’s potential liability for insolvent trading.

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  • It should limit the director’s potential liability of offences under the Corporations Act 2001 (Cth).

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  • The liquidator is an independent person appointed, who will conduct an orderly winding up of the company’s affairs and deal with any enquiries the creditors may have.

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As soon as a Director or member feels the company may not be in a position to pay its accounts as and when they fall due, they must either;

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  1. commence to realise on assets and use the funds to pay creditors

  2. attempt to refinance the company and use those funds to pay creditors

  3. Inform creditors of their cash flow problems, particularly any financial institution holding security

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These steps avoid the company being placed in liquidation by creditors namely the ATO and should any creditor apply to the court for a wind up of the company then section 459s allows the judge to adjourn the hearing so that you can prove solvency.

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Once the Director has informed the shareholders that he wishes to arrange a voluntary liquidation.  The liquidator to be appointment will forward minutes and appointment documents to the director and shareholders, who are then required to sign a resolution confirming the liquidator’s appointment.

 

Our role is then one of assisting both the Director and Liquidator to manage the process.

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