There is a certain stigma attached to liquidation and company directors often don’t want their companies to go into liquidation. But liquidation can often be the only option for a company. And sometimes it can also be a good option.
What is liquidation?
A liquidation can start voluntarily through shareholders of a company resolving to appoint a Liquidator. Or a creditor (or sometimes a shareholder or director) can go to Court and get an Order for a company to be placed in liquidation.
When a Liquidator is appointed, they shut down the company’s business and sell its assets. They also carry out various other tasks and ultimately distribute surplus funds to people the company owes money to. Once a liquidation is finalised, the company is deregistered.
Benefits of liquidation
There are sometimes benefits of placing a company in liquidation, which can include:
- It can be used as a way to shut down an unprofitable business which cannot pay its debts;
- A director has a duty not to trade a company which is insolvent. If a company is insolvent placing it in liquidation can avoid breaching that duty and future claims for insolvent trading;
- It can avoid or minimise personal liability for company tax debts under Director Penalty Notices; and
- It can result in a company’s employees being paid by a scheme funded by the Federal Government.
An example of when liquidation was the best option
We were referred a client whose company provided security and crowd control services. The company owed a large tax debt and the ATO had applied to Court to place the company in liquidation.
The company had no ongoing contracts, it owned no significant assets and all its employees were employed on a casual basis.
The company’s debt to the ATO was over $1 million. Notwithstanding this, the director wanted to save the company and wanted to enter into a payment arrangement with the ATO.
When we met with the director, we reviewed the company’s financial position and determined it had no realistic prospect of ever being able to pay the ATO’s debt. We also considered it was highly unlikely the ATO would enter into a payment arrangement with the company given the level of debt owed and the company’s lack of profitability.
We also explained to our client the impacts of liquidation would be and that liquidation did not preclude him from starting a new business, even in the same industry. Our client ultimately let the company go into liquidation. We then facilitated and attended a meeting with the company’s liquidator where we provided the liquidator with information about the company’s affairs. We also made an offer to the Liquidator on behalf of our client to purchase the company’s assets (other than debtors). After some negotiation the offer was ultimately accepted.
It was then open to our client to set up another business and this time seek to make it profitable. And we understand this is what he did.
Contact us for assistance
As you can see liquidation does not always have to be a bad thing. But there are also options available other than liquidation.
So, if your company is having difficulty paying its debts, then you should urgently get professional advice about what you should and can do. And TAX DEBT SOLVED can help. So, in these circumstances please contact us for a free, no-obligation consultation, here.