The fight to keep a struggling business alive can be physically, mentally and emotionally draining. While a part of you may wish to cut and run, the other part (usually the part that helped launch the business in the beginning) continues to push – exhausting every possible means to stay afloat.
But whether it’s been on the cards for weeks or months, the day you realise liquidation is inevitable is also the day you can start to plan your recovery. The steps you take at this juncture can be pivotal in protecting you, other directors, your future and your family.
Let’s explore the two ways your company can enter liquidation, and how each may affect your life as the process unfolds and after it’s over.
Forced liquidation vs voluntary liquidation
Any creditor – from a supplier to the ATO to your electricity company – can petition for liquidation if your company owes them $2,000 or more.
If this happens, liquidation generally unfolds this way:
- The creditor makes application to court to wind up company
- Wait for a court date (may take two to three months)
- Judgement (if the creditor is successful, the company is placed into liquidation)
- The court appoints a liquidator
- Liquidator deals with creditors
- Liquidator sells assets for the benefit of creditors
The liquidator will also investigate how the company has spent its money and the conduct of its directors. They could determine it should have been placed into liquidation much earlier, meaning that the company continued to trade even though it was insolvent.
In this case, you can be held personally liable for debts the company incurred during that time. Accordingly, you may have to use your personal assets to meet an insolvent trading claim to raise funds for the company’s creditors.
Also, any payments you made on behalf of the company before liquidation may be placed under the spotlight. For example, if you knew the company would go into liquidation and repaid a relative their $20,000 investment before you shut the doors, the liquidator may take steps to overturn the payment so the funds are made available to all creditors.
Because forced liquidation requires a court appearance, it can lead to legal fees. The creditor that petitioned for the liquidation can also claim their legal fees from your company in addition to what they’re already owed. Forced liquidation isn’t usually a fast process, and carries limited options for the debtor (your company).
If there are signs your company may be ready for voluntary liquidation, act fast. Proper advice can prevent you from making mistakes that could come at a personal cost later down the track.
You can choose to enter voluntary liquidation at any time, if you have agreement from all directors and shareholders. The process can unfold much faster than forced liquidation, with more potential options available to you.
This is the process when you come to RSM for voluntary liquidation:
- Free consultation and financial analysis
- Discuss available options
- If you choose liquidation, hold a shareholders meeting
- Seek our consent as your registered liquidator
- We deal with creditors immediately
- We sell assets for the benefit of creditors
We must still review the cause of the liquidation and how funds have been spent. But having acted early, you are likely to limit the extent to which you’ve been trading while insolvent, your personal exposure, and the consequences of liquidation.
Life after liquidation
There are many variations to how liquidation can play out, which is why it’s important to have someone you trust walk you through it.
If a creditor petitions for liquidation, be wary of “too good to be true” offers from companies that contact you after the application is made public by the courts. This is how many of those companies make their money, and it may not be with yours or your creditors’ best interests at heart.
Done right, liquidation can be an effective end to one chapter of your life and the start of a bright new one. Undoubtedly, the distress you have suffered through as you tried to keep the company afloat will be gone – as will the creditors and incessant phone calls.
With expert financial advice, you can reclaim the life you were trying for and move forward with confidence. Book a free consultation now. Contact your local RSM office.