Insolvency & Business Turnaround Solutions

Creditors’ voluntary liquidations (CVL) are a formal process that occurs when the company’s directors and subsequently its members determine that the company is insolvent, or likely to become insolvent and can no longer satisfy its debts.A CVL allows for the appointment of a qualified person (the Liquidator) who is tasked with immediately realising the Company’s Assets for the benefit of the creditors of the company.

Benefits of Creditors Voluntary Liquidation

There are many benefits to the creditor’s voluntary liquidation, including:

• Brings the Company’s affairs to an end and allows its assets to be realised for the benefit of the creditors of the Company.
• An expert is able to take control of the difficult situation and relieve the stress that may be experienced.
• Legal action that has been commenced prior to the appointment of the Liquidator is automatically stayed
• Avoid a winding up commenced by the Court.
• Lower costs
• Avoiding risks of continued insolvent trading and breach of directors’ duties
• Allows for the employees of the Company to be immediately terminated and where there are insufficient funds, they may seek to make a claim under the Fair Entitlement Guarantee Scheme.

The process of commencing a creditors voluntary liquidation is as follows:

• a meeting of the directors of the company takes place to resolve that the company is insolvent or likely to become insolvent and accordingly, that the company should be wound up.
• The directors will then call a members’ meeting to wind up the company;
  the members meeting will take place to pass a special resolution (or a circular resolution if no members’ meeting is held) that the company is insolvent and should be wound up.

The directors of the Company must complete a summary of affairs on an ASIC Form 509:

• the members appoint a liquidator, and the company must provide, within seven days of the winding-up date, a summary statement under ASIC Form 507. This is a statement that outlines the company’s business, its property, financial circumstances and any other relevant affairs;
• the liquidator must issue a report to creditors within 11 days after the date of winding up. The creditors have the power to request a meeting of creditors to be convened for the purposes of removing the liquidator and appointing an alternate should they deem it appropriate;
• The Liquidator also undertakes various investigations into the affairs of the Company and the reasons for its failure to enable a report to creditors to prepared within three (3) months of appointment; and
• the liquidator will continue to administer the winding up process by paying out creditors with available funds. They will then prepare a final report for creditors, lodge various documents with ASIC and request for the company’s deregistration.

Your financial circumstances might mean that a formal Restructuring process is more suited for your business. Restructuring solutions are conducted under certain provisions in the Corporations Act. The restructuring options that may be available to you are:

Voluntary Administration
Voluntary Administration meaning: a formal insolvency appointment that allows a company experiencing financial difficulties some breathing space while the company’s future I is decided allows a company to continue to operate, or, if this is not possible, it provides for a greater return to creditors than would otherwise occur if the business was immediately liquidated.

Directors of the company usually instigate the appointment of the Administrator when they believe the company is insolvent or is likely to become insolvent (i.e. the company is unable to pay its debts as and when they fall due). The appointment allows a qualified person (the voluntary administrator) to take control of the company and formulate a way of saving the businessA VA appointment immediately suspends most creditors’ claims against the company and lasts for a period of approximately 20 business days.

At the end of this period, creditors vote for one of these options:

• Approve a Deed of Company Arrangement, that has been formulated by the directors in conjunction with the Administrator, that allows the company to pay all or part of its debts over a given period of time and at the completion of the DOCA the company is free of those debts
• End the VA and return the company to the control of its directors; or
• Wind up the company and appoint a liquidator.

Benefits of Voluntary Administration

There are many benefits to the Voluntary Administration Process, including:

• Providing a window of time to allow you to collect your thoughts and work with the administrator to create a plan to get your company back on track.

• Quick resolution of the company’s future.

• The best chance for a company to restructure its affairs and continue trading in some form.

• Administers company’s affairs in order to give creditors a better return than they would get if the company were placed into liquidation.

A Deed of Company Arrangement is a formal process that enables the company to avoid liquidation and continue in some form into the future. A deed of company arrangement is a binding agreement between a company and its creditors setting out how the affairs and assets of the company will be dealt with if the company has entered voluntary administration. Entering into a deed of company arrangement can allow a company to avoid the total and immediate winding up of its affairs and creditors can also get a better return than the immediate liquidation of the Company.

Benefits of a Deed of Company Arrangement.

The key benefits of a Deed of Company Arrangement are:

• Allows for a formal repayment arrangement to be agreed between the Company and its creditors;

• Contributions/repayments can be made over a period of time from ongoing cashflow of the business; and

• A Deed of Company Arrangement could allow for creditors to continue trading with the Company and share in the benefit of the Company’s ongoing success.

The Process of a Deed of Company Arrangement

The Deed of Company arrangement process is as follows:

• At the second meeting of creditors of the Company convened by the Voluntary Administrator of the company, the creditors will vote on a Deed of Company Arrangement proposal. For the proposal to be approved, the majority of creditors in both number and value must vote in favour of the proposal;

• Upon approval the Company has 15 business days after the end of the end of the creditors meeting where it is approved. If the DOCA is not executed it will automatically go into liquidation;

• The Deed Administrator will then administer the DOCA in accordance with it terms and upon all contributions and/or asset realisations occurring the Deed Administrator will distribute available funds to the creditors of the Company

Members’ Voluntary Liquidations (MVL) are a formal process that allows a solvent companies affair to be wound up and requires the company to be able to pay all of its debts within a twelve (12) month period. A MVL allows for the appointment of a qualified person (the Liquidator) who is tasked with realising the Company’s Assets and distributing any surplus to the shareholders of the Company.

Benefits of Members Voluntary Liquidation

There are many benefits to the creditor’s voluntary liquidation, including:

• It allows an independent expert to take responsibility for attending to the finalisation of the company’s affairs, which may be legalistic and time consuming process;

• There may be tax benefits to the company’s shareholders. For example distribution of a company’s paid up share capital and pre-CGT reserves may be distributed to members tax free. In addition, the Liquidator is able to obtain clearance from the ATO;

• The Liquidator may be able to distribute the assets of the Company in specie to the shareholders of the Company should this be a desired outcome; and

• It is a more formal procedure to finalise a company’s affairs, particularly where the company is unable to be voluntarily deregistered due to restrictions imposed by ASIC.

The process of a members voluntary liquidation is as follows:

• a meeting of the directors of the company takes place to resolve that the company is solvent and that the company should be wound up. The directors are required to prepare a Declaration of solvency ASIC Form 520, setting out the assets and liabilities of the Company Once the declaration is lodged with ASIC, the directors will then call a members’ meeting to wind up the company;

• the members meeting will take place to pass a special resolution (or a circular resolution if no members’ meeting is held) that the company should be wound up.

• The Liquidator proceeds to realise the assets of the Company, attend to the lodgement of any outstanding tax returns and seek clearance from the ATO. Upon receipt of the tax clearance, the Liquidator will pay any outstanding creditors prior to making a final distribution to the shareholders of the Company.

A personal insolvency agreement (PIA) is one of two agreement options available. A PIA, also known as a Part X, is a legally binding agreement between you and your creditors.

A PIA can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.

A personal insolvency agreement involves:

• The appointment of a trustee to take control of your property and make an offer to your creditors
• The offer may be to pay part or all of your debts by instalments or a lump sum.

Other important information you need to know includes

• There are no debt, asset or income limits to be eligible for a PIA
• The length of your PIA will depend on what you negotiate with your trustee and creditors
• You may retain your assets (such as house or car) if the terms of the agreement allow
• Fees apply to process, propose and manage the agreement
• You must speak to a trustee  about the fees they may charge

Before entering a personal insolvency agreement

Financial counsellors can help you and are available in every state and territory. Their services are free, independent and confidential. They can provide advice about your financial situation and recommend the best option for you to deal with unmanageable debt. To speak with a free financial consellor  contact the National Debt Helpline on 1800 007 007

Know your options

A PIA is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include temporary debt protection for 21 days, debt agreements and bankruptcy. There are also other options available (such as coming to an agreement with your creditors).

Understand the consequences

Entering a PIA may have a serious impact on you. It may affect your employment, ability to get credit and will appear on a public register permanently.