Use our advice to rescue your business and to preserve your assets and self-protect.
What are liquidators, receivers and administrators?
Liquidators and voluntary administrators are people who are given powers to resolve financial problems in companies where debts are not paid. Bankruptcy trustees have the same powers over individuals where debts are not paid. A Receiver works for a secured creditor (eg bank) and is appointed over security (eg a building) of a company or an individual. All of these people are officially licensed people by the government agencies and/or courts.
An administrator is appointed by a resolution of the board of the company in circumstances where the company is, or will become, insolvent but there is a chance that a deal can be done with creditors to ‘buy’ their support for a proposal (called a Deed of Company Arrangement or DOCA) to allow the company to continue. Once appointed, the administrator must immediately prepare a report containing recommendations as to whether the company should be returned to the control of the directors (NOT LIKELY), wound up or execute a DOCA. In certain circumstances, a liquidator or receiver of an insolvent company may elect to appoint an administrator (e.g. where a proposal for a payment to creditors that is in excess of that which creditors would receive under liquidation – SO IF A LIQUIDATOR HAS BEEN APPOINTED TO YOUR COMPANY ALL IS NOT LOST AND THERE ARE STILL OTHER OPTIONS TO CONSIDER.)
Actions by all creditors are stayed during the voluntary administration process (VA), and secured creditors may act against property in only specific circumstances.
During the VA a person cannot enforce a charge on the property of the company, except with the Administrator’s consent or with leave of the Court.
Similarly, during the VA period, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except with the Administrator’s written consent or with leave of the Court.
During the VA period, guarantees cannot be enforced against a director, a spouse, defacto spouse or relative.
Importantly, the VA process will eliminate the directors’ personal liability under an ATO section 222 notice, provided the company’s appointment of the VA is made within 21 days of the notice and as long as BAS statements were lodged within three months of the due date.
Administrators are required to be registered liquidators, and by virtue of their appointment have broad powers to deal with company property. The appointment of an administrator “freezes” any legal proceedings (on foot or anticipated) against the company, and control of the company is given entirely to the administrator. Directors of the company are prohibited from acting in their capacity as directors for the duration of the administration (at least until the DOCA is accepted by creditors and involves their participation).
While administrators are personally liable for any debts incurred by the company in the course of the administration, they are granted a statutory indemnity against these debts.
BE AWARE OF THIS…
Historically over half of all DOCAs fail and the company ends up in liquidation anyway. The process is very expensive because all the while it is being done the (unethical or extravagant) administrator is charging fees AND INCURRING LEGAL BILLS FROM HIS FAVOURED HIGH COST INSOLVENCY SOLICITOR, FAVOURITE VALUER, FAVOURITE ACCOUNTANT AND HIS TEA LADY.
It can also have a negative effect on customers – we have seen 60% abandon a meat processor after appointment, 50% in an IT company.
We make sure the main suppliers/customers/banks/financiers/employees are convinced the DOCA is the best option and understand why. We make sure the DOCA is achievable, won’t ruin your finances or your health and that you can really do it. It has to be your best option and there are others that we also consider – often better options, depending on your circumstances.
A liquidator is the legally approved officer appointed when a company needs to be wound-up or terminated (put out of its debt misery) otherwise the directors run the risk of committing civil and even criminal misconduct.
The Liquidator shall:
- Collect, preserve and sell the company’s assets;
- Investigate and report to creditors any undue (unfair) preferences which may be recoverable and any rights of action against the officers of the company for insolvent trading or misfeasance;
- Pay the cost of the liquidation and certain priority claims (employee entitlements);
- Enquire into the conduct of the company’s affairs and its directors and report to the ASIC;
- Complete the liquidation, and apply for de-registration of the company
Employee entitlements including back pay and retrenchment can in large part be funded by the Federal Government scheme GEERS, where there is a shortfall in asset realisations. The liquidator will make appropriate application for this funding depending upon the circumstances. Directors’ entitlements are limited by Sec 556.
The liquidator has responsibility for collecting all of the assets of the company and settling (paying as much of the debts as possible) all claims against the company before putting the company into dissolution (or making it disappear from the face of the corporate universe). If the company can pay all its debts the process is known as a Members Voluntary Liquidation. If not it is a Creditors Voluntary Liquidation (CVL) where the affairs and directors of the company are subject to possible intense scrutiny.
BE AWARE OF THIS…
We believe both of these processes can be very useful in restructuring your obligations and future circumstances IF AND ONLY IF part of an overall strategy which controls the assets and income streams and deals with liabilities properly.
The liquidator may carry on legal proceedings and carry on the business or sell assets of the company, make legal claims, even raise credit to benefit creditors. The liquidator must assume control of all property to which the company appears to be entitled. The creditors can really only force the liquidator to call a meeting and admonish him for excess fees or slackness or playing favourites. In other words the liquidator has enormous power and given he controls the where and when of meetings and that most creditors get thoroughly sick of the process, can just about ensure the approval of his fees once the assets of the company are realized. Often the fees will correspond closely to the value of those assets. Then he sends out a report telling the creditors how he spent the money (charging for his time in compiling the report). The liquidator is obliged to do and present accounts and should investigate the causes of the company’s failure and the conduct of its managers. If the liquidator uncovers wrongful trading or even fraudulent trading on the part of the management of the company, he may have power to bring proceedings against officers. The liquidator may also seek to set aside transactions where he forms the view that they constitute an unfair preference or a transaction at an undervalue.
We believe it is better to get the affairs of the company in order and remedy any transactions that raise a red flag prior to appointment. We quickly scan your company affairs, accounts and books and deal with anything that needs it.
A receiver is a person empowered to control a particular asset by virtue of a court order, charge (finance agreement) or provision of the law. The receiver can secure, sell or manage the asset. The ‘asset’ may include the entire company which it may run, sell or break-up.
A receiver owes a prime duty to the company’s secured creditor who appointed him he owes no duty to the unsecured creditors or other party, which is why in some situations, a voluntary administrator (VA) or liquidator may also be appointed. The VA has responsibility to all creditors, and can overview the receiver’s operations.
A secured creditor can only appoint a receiver based on its charge documentation executed PRIOR to an advance of funds. The charge may be fixed or floating, or merely cover only specific assets.
In a floating charge appointment, the employees’ entitlements have priority to the secured creditor.
BE AWARE OF THIS…
While there are legal obligations on a receiver to get the best price reasonably achievable, the receiver is (usually) appointed by the financier who guarantees their fees and may have more work for the receiver in the pipeline – so guess who the receiver cares about. That’s right the financier, not you.
If the bank is upset, you need to act to get a do-able restructure in place so you retain some control over the assets and the business. You need a third party, like Triple R, who is used to such situations and work-outs, who can lend some weight to your presentation.