Liquidators have reputations for being aggressive, money-hungry and heartless. Attwood Marshall Lawyers Commercial Litigation Senior Associate and Law Society Accredited Specialist in Dispute Resolution, Charles Lethbridge, gives his insight into how business owners can navigate looming insolvency – and how to formulate a recovery plan with less-stress.
COVID-19 support packages for businesses coming to an end
In the early stages of the COVID-19 pandemic, the Morrison government implemented a number of laws to protect companies and individuals who had been, or who may be, impacted financially by the pandemic. These included, but are not limited to, relief for commercial tenants whereby a temporary hold on evictions and a mandatory code of conduct for commercial tenancies was rolled out. For businesses eligible to access JobKeeper, these payments allowed businesses to continue paying their employees or themselves as a sole trader. Temporary increases to the threshold at which creditors could issue a statutory demand on a company and the time companies had to respond to statutory demands they received were implemented. Measures to provide temporary relief from director’s personal liability for trading while insolvent were also activated.
The government’s temporary relief packages are about to end. As a law firm consisting of experienced insolvency lawyers, with a history spanning more than 7 decades assisting individuals and small to medium sized businesses since World War II, we understand better than anyone in Australia the ramifications of liquidation and bankruptcy and the impact it has on people’s lives and their families lives.
For many businesses, insolvency is looming
For most people, insolvency (not being able to pay debts as and when they fall due) can be a terrifying experience. The unknowns associated with liquidation and bankruptcy can be equally terrifying.
Liquidators and bankruptcy trustees have reputations for being aggressive, money hungry bad guys, and unfortunately there is a lot of truth to that notion. However, at Attwood Marshall Lawyers, in keeping with our primary goal which is to help people, we don’t work with liquidators or bankruptcy trustees who are like that. Believe it or not, there are liquidators and bankruptcy trustees who care about people and who want to help them through what is often the most difficult period of their lives.
We have extremely close relationships with a number of insolvency practitioners who operate in line with our core values and together we guide individuals and companies through insolvency, whether that means assisting businesses to develop resilience and strategies with a view to staving off liquidation and bankruptcy, or working with liquidators and bankruptcy trustees to assist people through the insolvency process. We work through these processes without the aggression and enormous costs liquidators and trustees are renowned for.
Avoiding liquidation or bankruptcy – alternative solutions
There are various informal solutions which can be implemented with your creditors with a view to avoid liquidation or bankruptcy. These include:
- Informal arrangements and settlements with creditors;
- ATO payment arrangements;
- Debt restructuring;
- Business turnaround strategies.
Via skilled negotiation, Attwood Marshall Lawyers regularly assist clients to generate viable options for settling with creditors on terms that all parties ultimately benefit from. Many people don’t appreciate that when a company goes into liquidation, or if a person becomes bankrupt, those businesses can no longer operate and therefore they can’t make money to pay creditors! Often liquidation and bankruptcy benefits no one.
In addition to an informal option, there are more formal solutions also available to businesses, including:
In 2017, the Federal government passed legislation to provide support and assurance for company directors in circumstances where a genuine opportunity to turn around a business exists, but in circumstances where directors are concerned that while assessing the business’ options they are exposed to personal liability for insolvent trading. The ‘safe harbour’ regime’s purpose is to give company directors an opportunity to seek proper advice, to develop and implement an action plan to achieve a better outcome for the company and its creditors; as opposed to simply shutting down the company and appointing an administrator or liquidator.
A range of criteria must be met to be able to take advantage of the safe harbour regimes protections.
The voluntary administration process is designed to assist an insolvent company satisfy its debts by ensuring that it can either come to a formal arrangement with its creditors to pay those debts through a Deed of Company Arrangement (DOCA) or by being placed into liquidation, quickly and inexpensively. This process maximises the chances of a company continuing to exist by giving it an opportunity to do a deal with its creditors.
Other formal solutions include:
- Liquidation; and
- A members voluntary winding up.
Liquidation is a process to formally wind up a company’s affairs. That can be done voluntarily by the company’s members with a view to liquidating company assets to satisfy outstanding debts, or a company can be ordered into liquidation by a Court at the petition of a creditor. Unfortunately, sometimes liquidation and bankruptcy are the only option.
How can Attwood Marshall Lawyers help?
In conjunction with insolvency practitioners, our lawyers can assist clients to mitigate the risks associated with insolvent trading, director’s liabilities and director penalty notices.
Critically, placing a company into liquidation (or for an individual, entering into bankruptcy) gives people the fresh start they need. All of your debts are wiped! This has the effect of eliminating stress and no longer having to live with the negative and unhealthy emotional burdens associated with a stressed or failing business.
Liquidation and bankruptcy doesn’t have to be the horrifying experience that governments and media make it out to be. With assistance from professionals who care about people and what they are going through, liquidation and bankruptcy can be a stress-free, affordable and liberating experience.