At APL Insolvency we specialize in helping business owners when their company is facing insolvency. We understand both the challenges and responsibilities directors must deal with including the need to take action when their company is having difficulty paying its debts.
If your company is experiencing financial difficulty, the team at APL is here to help you understand the options that may be available.
If a creditor is seeking to wind up your company in court, the experts at APL Insolvency may be able to help you understand the options that may be available.
Here is some information about the court winding up process to help you understand more about court liquidations.
A court liquidation usually occurs as the result of a creditor taking action to recover their unpaid debt by making an application to court to wind up the company.
In order to obtain a court order to wind up a company, a creditor must have a valid debt and be able to demonstrate to the court that the company in question is insolvent. If the court is satisfied the company is insolvent and should be wound up, it will make a winding up order placing the company into liquidation and will appoint a registered liquidator (usually a liquidator nominated by the creditor).
Once appointed, the liquidator undertakes all the usual duties required of a liquidator including taking control of and selling the company’s business or its assets, collecting outstanding debts or otherwise taking actions necessary to recover funds to repay the company’s creditors.
The liquidator will notify all known creditors and other stakeholders of the liquidation and will deal with all matters required to wind down the company’s business.
The liquidator will also investigate the company’s affairs and report to ASIC. Any other avenues of recovery that may be identified including insolvent trading claims against directors, possible preferential payments or other potential uncommercial transactions or loans, may be pursued by the liquidator in order to generate funds for creditors.
Any funds recovered by a liquidator in a court liquidation are distributed according to priorities set out in the Corporations Act 2001 with the legal costs of the petitioning creditor paid first, with the liquidator’s fees and costs plus amounts owed to secured creditors and priority creditors (ie: for unpaid employee entitlements or superannuation) then paid before any repayment to unsecured creditors.
The potential outcomes of a court liquidation depend on what side of the liquidation you sit:
For company directors, a court winding up means that you lose control of the process and miss out on the opportunity to explore other options that may be available. You lose the ability to discuss the available options with an insolvency practitioner beforehand or control the timing of an appointment.
Even worse, you might even face an insolvent trading claim against you for failing to act early and preventing the company from incurring debts it could not repay.
For creditors, a court liquidation enables an independent person with appropriate expertise to take control of the company and seek to recover funds to repay the company’s debts and to otherwise investigate and report on the company’s affairs and the director’s conduct.
Creditors relieve themselves from dealing with poorly performing companies and from wasting time pursuing collection avenues. In the best-case scenario for creditors, creditors are able to recover all or most of their debt. On the negative side, however, a creditor taking action to wind up a company could end up spending additional time and money on a debt that will never get paid if the company in liquidation has insufficient assets.
The costs of a court liquidation are dependent on what side of the liquidation you sit.
The creditor seeking to wind up the company pays the legal costs of the process. While those costs are paid first if any funds are recovered in the liquidation, it is not unusual that no funds are recovered in a court winding up with the result that those costs - and the creditor’s debt - remain unpaid. Therefore, creditors really need to consider how much they are likely to gain before opting for what can prove to be a risky investment.
For directors, there are no upfront costs in a court liquidation as the winding up action is undertaken by creditors.For directors, there are no upfront costs in a court liquidation as the winding up action is undertaken by creditors.For directors, there are no upfront costs in a court liquidation as the winding up action is undertaken by creditors.
If your company is experiencing financial difficulties, now is the time to act.
At the first signs of financial stress, it is always best to seek advice from an experienced insolvency practitioner who can advise regarding the available options to help you maintain control of your company and deal with its debt and financial struggles.
If your company is facing the risk of a court liquidation or if a creditor has already commenced the process to wind up your company, the sooner you speak to an insolvency expert, the more options may be available to you to help your company survive.
APL Insolvency has over 20+ years of experience in dealing with court liquidations and other forms of corporate insolvency.
If you are interested in learning more about the options that might be available to save your company, contact APL Insolvency today to arrange a free, no-obligation options assessment consultation.