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.
We seek to find solutions that allow your company to overcome financial challenges and continue to trade. Our goal is to always help you take a proactive approach that effectively manages the threat of insolvency and provides the best outcome for all stakeholders.
If your company is experiencing financial difficulty, the team at APL is here to help you understand the options that may be available.
One of the options is a Creditors’ Voluntary Liquidation (CVL). Here is some information about the voluntary winding up process to help you understand when a CVL might be the best choice.
As the name implies, a CVL is a voluntary liquidation although despite the name, it is an appointment made by the company’s directors and shareholders.
A company is considered insolvent if it is unable to pay its debts as and when they fall due. When a company is insolvent, its directors have an obligation to take appropriate action or they run the risk of being exposed to an insolvent trading claim by a liquidator if the company is subsequently wound up. If the directors are unable to deal with the company’s potential insolvency by actions such as increasing revenue or cutting costs, selling assets or raising additional funds, they can voluntarily appoint a liquidator to wind up the company.
A liquidator in a CVL takes control of the company and its assets and seeks to recover funds to pay the company’s outstanding debts.
Once appointed, a liquidator has the power to sell the company’s business or its assets, continue trading the business if necessary, as well as collect outstanding debts or other actions to recover funds to repay the company’s creditors.
The liquidator will notify the company’s creditors and other stakeholders of the liquidation, and will deal with issues such as closing bank accounts, ceasing insurance policies and any other matters required to wind down the company’s business.
The liquidator is required to investigate the company’s affairs and report to ASIC. The liquidator’s investigations may also identify other avenues of recovery to pursue including insolvent trading claims against directors. Various transactions may also be challenged by liquidators including transactions considered to be preferential payments or other potential uncommercial transactions or loans.
Funds recovered by a liquidator are distributed to various classes of creditors according to priorities set out in the Corporations Act 2001 with the liquidator’s fees and costs and amounts owed to secured creditors and priority creditors (ie: for unpaid employee entitlements or superannuation) paid first before any repayment to unsecured creditors.
When it becomes apparent your company is insolvent and it is impossible to pay your debts when they fall due, a voluntary liquidation may be the answer. By undertaking a voluntary liquidation of your company, you can face cashflow problems head-on and avoid being pursued by creditors while also fulfilling your responsibilities as a director.
Company directors have an obligation under the Corporations Act 2001 to continuously monitor their company’s performance and to take appropriate action if it appears that the company is or is about to become insolvent, and can no longer pay its debts as and when they fall due. If they don’t take appropriate action, directors may face an insolvent trading claim against them personally in the event of subsequent liquidation. Taking the voluntary liquidation route allows directors to appoint their own liquidator and reduce that risk.
If your company has received statutory demands or court judgements, or if you are trying to stick to payment arrangements or constantly exceeding your overdraft, it’s time to talk to the team at APL Insolvency to discuss how we can help.
There are five simple steps involved when you take the CVL route:
- Your company makes the decision to contact an insolvency practitioner to discuss the available options.
- Based on a collaborative and careful analysis, you choose to voluntarily wind up your company and appoint the insolvency practitioner of your choice.
- The appropriate resolutions are passed by directors and shareholders and the liquidator is appointed.
- The documents are lodged with ASIC and become public.
- Once the liquidator is appointed, you provide the liquidator with the company’s books and records together with any other information or assistance that may be required.
Once the company is in liquidation, your role as a director is simply to assist the liquidator when required and otherwise, to get on with life after the company!
In the best-case scenario, because you’ve decided to deal with the issue early, you minimise damage to creditors while maximising the chances of repaying the company’s debts. In addition, you fulfil your responsibilities as a director which in turn reduces the risk of an insolvent trading claim against you. For a relatively small cost - or potentially for no upfront cost at all - your company is able to deal with its outstanding debt in a legal and transparent manner and you can look forward to new opportunities.
In the worst-case scenario, if you fail to act when your company is insolvent it may not only cause your company’s creditors to suffer much larger losses than they otherwise might - and increase the risk of very disgruntled creditors! - but may also lead to personal claims against you for insolvent trading if a liquidator is subsequently appointed. Delaying appropriate action likely means you are failing to fulfil your responsibilities as a director and may end up damaging your business reputation and make it more difficult to pursue other business endeavours in the future.
The costs of a CVL can vary widely depending on the company, the complexity of the liquidation and the amount of work involved as liquidator’s fees are generally charged at hourly rates based on time spent on the liquidation.
Liquidator’s fees are usually paid out of the funds raised from selling company assets or other recoveries in a liquidation. When a company has no assets, an upfront fee is usually agreed with the directors to meet the initial costs of the winding up.
At APL Insolvency, we discuss your situation to determine how much work is involved to estimate the upfront fee if one is required. In general, directors may pay an upfront fee that ranges from $8k to $10k for a simple CVL with a low level of debt to a higher initial fee for more complicated situations when more substantial debts and more work is involved. Remember - if your company has sufficient assets, you pay no upfront costs.
Note that the upfront fee that we agree with you will usually only cover the initial costs of the liquidation. However, payment of any liquidator’s fees that exceed the initial agreed amount is subject to the recovery of further funds in the liquidation. That is, if the liquidation fees exceed the initial amount and there are no more funds, the additional time costs are written off. However, if assets are recovered and further funds are available, liquidation fees exceeding the initial amount may be paid subject to obtaining approval from creditors or if necessary, the court.
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. 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 CVLs and other forms of corporate insolvency.
If you are interested in learning more about the CVL process and whether a CVL can help your company, contact APL Insolvency today to arrange a free, no-obligation options assessment consultation.