A key purpose, arguably the prime purpose of a liquidation, is to give creditors the best possible return on their debt. After all, in the case of an insolvent liquidation, it is almost always the demands of creditors (such as through a statutory demand, see below) which precipitate a winding up or liquidation process.
Are you owed money by a company that is being wound up? Don’t get your hopes up until you have seen the 3 month statutory liquidator’s report. It is this report that will give a clear indication of the likelihood of a return.
The winding-up of a company is a daunting experience for a director. They know that their previous actions are under close scrutiny. But does that scrutiny include their personal assets? In short, yes. But liquidators need to tread carefully. In this article, we look into liquidators using the examination power to inquire into a director’s personal assets.
An important task for a liquidator, once appointed, is to see whether there are any transactions of the company that are ‘voidable’, and can be clawed back for the purposes of distribution to creditors.
In this article we explore the circumstances under which the Australian Tax Office (ATO) will fund a liquidator’s claims. The take-away is that the ATO doesn’t necessarily fund on purely commercial considerations (unlike a private litigation funder) and so it is impossible to predict whether a liquidator will be funded by the ATO until the funding arrangement is already agreed upon.
If a liquidator is appointed to an insolvent company, and believes assets have been depleted due to fraud, what can they do? Even if the crime of fraud can be proven, this does not necessarily aid the liquidator in recovering assets. Here we look at the option for liquidators to use the concepts of ‘knowing receipt’ and ‘knowing assistance’ established in the 19th century English case of Barnes v Addy to recover from third parties in cases of fraud. It is a difficult claim to defend because it is vague and open to broad interpretation when a director fails to keep adequate books and records before winding up.
Can a Liquidator Ignore ‘Retention of Title’ Claims and Keep Inventory when a Business is put into Liquidation?
Many businesses supply goods to other businesses on credit. In many cases, this inventory is covered by a so-called ‘Retention of Title’ clause in favour of the supplier. Here we assess the consequences of liquidation on a Retention of Title claim, the impact of the Personal Properties Securities Act 2009 (Cth) and whether a liquidator might ever be permitted to ignore such a claim (the answer, generally speaking, is no – they cannot ignore it).
Directors often fail to pay themselves a salary before winding up. Instead, many small and medium-sized enterprise (SME) directors pay themselves throughout the lifetime of a company by withdrawing cash that is accounted for in a company loan account. In doing so, directors often seek to delay the payment of the income tax (PAYG) that they would have to pay if they drew a salary.
The dynamics of liquidations can quickly turn toxic. Directors initially see the liquidator as a savior from tax debts and creditor actions and then when the investigations begin the directors see the liquidator as their enemy.
Once a director (or directors) has made the decision that a liquidator be appointed due to insolvency, who should they appoint? It is crucial that directors engage a sensible, experienced and practical (ie. commercially-minded) liquidator.
If you receive a letter from a liquidator demanding tens or even hundreds of thousands of dollars as part of a liquidation process, what do you do next?
In insolvency, a liquidator sometimes seeks to recover money from a creditor on the grounds that the creditor has received an ‘unfair preference’ in a payment from the debtor company. Here we explain how the ‘running account’ principle can be used by a creditor to push back against a liquidator’s claim of unfair preference.