Why Shaw Gidley
If, as a director, you believe your company is in financial trouble, seek professional accounting and legal advice as soon as you can.
It is imperative under Australian Legislation that a director of an insolvent company, or likely to become insolvent in the foreseeable future, acts responsibly. Australian Corporate Legislation specifically states that a director must not trade a company whilst insolvent, and there is a fiduciary duty upon a director to take action in these circumstances, potentially result in punishable offence if there’s failure to do so.
We are here to support you away from any risks to personal liability to not compensate creditors for unpaid debt, avoiding fines or even jail time.
Do not wait until it's too late, we’re here to be the expert advice you need to turn it around.
Frequently Asked Questions
Insolvent trading occurs when a director allows a business to incur debts even though they are aware the business is unable to pay them as and when they fall due, rendering the business insolvent.
It is important to note that the duty to prevent insolvent trading also applies to any person acting in the position of director, even if they are not formally or validly appointed as a director.
The Deed of Company Arrangement process or DOCA as it is often referred to, is a means to salvage and restructure an insolvent or near insolvent company and provide creditors with a better outcome than they would experience if the company was to directly enter liquidation.
A Deed of Company Arrangement must follow a Voluntary Administration and is proposed by the Directors during the Voluntary Administration period. The Administrator investigates the proposed Deed of Company Arrangement and makes a recommendation about whether company creditors should accept or reject the proposal. As a rule of thumb the Deed of Company Arrangement needs to offer creditors a better outcome than if the company was liquidated.
There are a number of commercial considerations that need to be taken into account when drafting a Deed of Company Arrangement. It is not just a simple case of a company seeking to compromise debts with creditors. Often the company will need to make significant changes to the way it does business if the Deed of Company Arrangement is to have any chance of succeeding. In addition, the company and its directors will need to have some goodwill left with a majority of its creditors, as it is the creditors that will ultimately decide the company’s future, so acting early is vital.
This type of administration was introduced to encourage directors of insolvent companies to take early action and is a mechanism for companies facing financial distress to obtain a “breathing space”. It also provides directors with protection from personally guaranteed corporate debts during the period of the Voluntary Administration period.
During the Voluntary Administration process, there is a moratorium period of approximately 5 weeks (six weeks at Christmas and Easter) in which creditors, subject to a number of exceptions, are prohibited from taking any action against the company to recover debts, enforce charges or have the company wound up without the consent of the either the Administrator or the Court.
The Administrator will convene two meetings of creditors during the administration:
The Administrator’s role is to take control of the affairs of the business, investigate the financial affairs of the company, report the findings and recommend to creditors one of the following three courses of action:
There are a number of common factors that can indicate that your company is in financial distress. Being unable to pay critical creditors, staff superannuation and the Australian Taxation Office are the most common. Below are some of the signs the Australian Securities and Investments Commission states can indicate your company is undergoing financial difficulty:
A director may be held personally liable to compensate creditors for the amount of the unpaid debts incurred from the time the business became insolvent to the start of the liquidation.
In 2015, the Australian Securities and Investments Commission focused on insolvent trading by directors, noting that the following penalties can apply in certain circumstances:
The Corporations Act 2001 provides some statutory defences for directors, however, directors may find it difficult to rely upon these if they have not taken steps to keep themselves informed about the company's financial position.
Eligible employees are entitled to claim under the Federal Government Scheme known as the Fair Entitlement Guarantee Scheme (FEGS), which provides for various employee entitlements upon the insolvency of a business, however, it should be noted that FEGS does not cover outstanding superannuation.
As a director of a company in liquidation, you no longer have the ability to act on behalf of the company in any capacity, however, you do have the legal obligation to assist the liquidator when requested to do so. Some of the obligations of a director include:
Not necessarily. Many company directors fear that if their company goes into liquidation, they will also be made bankrupt. Unless guaranteed, the personal financial affairs of the director are separate from those of their company.
Our firm has worked closely with Shaw Gidley Insolvency and Reconstruction. The team at Shaw Gidley are specialist insolvency practitioners and make the confusing process of insolvency easy to understand. The experienced team are honest, professional and are keenly aware of the interests of the relevant stakeholders. Our firm would recommend Shaw Gidley Insolvency and Construction to anyone looking for accurate insolvency advice and practical solutions that you can trust.
Butler Business and Law
In my business relationship with Shaw Gidley, I have always found them to act in their clients best interests and with utmost integrity.....They take the time to evaluate each individual circumstance and get the best result for their clients. Shaw Gidley, through open communication, take the fear and apprehension out of insolvency.
Jeff has been an absolute pleasure to work with. Liquidating a company is an incredibly stressful and emotional process, yet Jeff was supportive and guided me through the process every step of the way. I have no hesitation in recommending Jeff and his team should you ever find yourself in a similar situation. I've come away from the process feeling like I've been well taken care of and confident going forward into this next chapter.
Our firm has had a professional relationship with Jeff Shute and the team at Shaw Gidley for several years now. Throughout this time, we have sought Jeff and the team's knowledge, advice and expertise on a number of matters to help guide our clients through their own at times difficult circumstances.
Jeff and the team have always provided a wealth of professional and technical advice which has been tailored for our clients and designed specifically with the intention of helping to achieve an optimal outcome.
We would have no hesitancy in referring Jeff and the team at Shaw Gidley to anyone whose circumstances require it and look forward to continuing our professional relationship into the future.
I recently had the pleasure of working with Jeff Shute and the team of Shaw Gidley, on a mutual client matter, and I must say, their expertise and professionalism exceeded my expectations. My client was in financial distress and the guidance and advice provided to navigate through difficult times was paramount.
Right from the initial consultation, I was impressed with Jeff's attentive approach and professionalism. Jeff and his team at Shaw Gidley took the time to understand my clients situation and provided the tailored advice to provide the optimal outcome.
Throughout the entire process, Shaw Gidley displayed an outstanding level of knowledge and experience. Their expertise in insolvency, restructuring, and financial management is evident in every step they take. They kept myself and my client informed about the progress regularly and answered all our questions promptly, leaving me with a sense of confidence and reassurance that my client was in capable hands.
In conclusion, I wholeheartedly recommend Shaw Gidley to anyone experiencing financial difficulties. With Shaw Gidley by your side, you can be confident that you are in capable hands.
Having recently worked with the team at Shaw Gidley, I would be happy to recommend their services. Communication throughout the service was fantastic and appreciated their support throughout the process.
Shaw Gidley and their staff are always so informative, supportive and kind in their dealings with me. I have no doubt about their knowledge and experience and they are always so helpful
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