Financial Dispute Resolution

How is financial dispute resolution different?

Disputes over business financial matters often arise and require the assistance of professionals to resolve the matter. It is often appropriate to engage solicitors to assist with these matters, however the costs can sometimes outweigh the benefits or financial advisers may be required.

We assist people to resolve disputes with a commercially-minded approach. Often disputes focus closely on the issue that has arisen, but ignore other big picture factors affecting the parties such as time and financial commitments, and the impact of the dispute on the final outcome. As a result, these commitments can cause ongoing stress, a loss of focus on their business leading to decreased performance and financial costs that may outweigh the benefit of winning.

With our experience assisting people in financial difficulty and resolving financial disputes, Cactus Consulting can assist you to resolve financial disputes you may be involved in, or mediate between parties to find acceptable solutions you can agree on.

What types of disputes can financial dispute resolution help solve?

Types of engagements where we assist to resolve disputes commonly include:

  • Shareholder and director disputes
  • Settling legal claims and litigation
  • Property ownership disputes
  • Settling Liquidators’ claims for voidable transactions such as preference claims and uncommercial transactions
  • PPSR disputes with Liquidators
  • Family business disputes
  • Marital separation or family law proceedings which impact on the structure and performance of a business

Looking at these more closely:

Shareholder and director disputes

Disputes among directors and shareholders arise for various reasons. Concerns about the financial status of the company, lack of commitment from one party, changes in personal circumstances, family and marital breakdowns or just general disagreements about the direction of the business.

The departing director will be concerned about liability for guarantees and payment of tax and superannuation accrued while a director. Often a husband may run a business, while their wife may be director, or vice versa.

Shareholders will want to be repaid their investment and share value if they are leaving, raising disputes over value and the company’s ability to pay them out.

Negotiating between parties on a commercial basis puts the emphasis of resolving a departure on commercial grounds, while providing sufficient protection for companies and individuals from potential legal action or insolvency.

 

Settling legal claims and litigation

Litigation can start out with the optimistic expectations, people and businesses can be forcibly dragged into it or it can be just to prove a principle. But cases that start out strong can unexpectedly become problematic, and reasonable expectations of a favourable settlement being agreed can turn to frustration. Disputes are expensive with fees to reach trial often estimated at upwards of $250,000 for each party. Lawyers, barristers, expert reports and court fees all add up. And none of this takes into account the significant emotional and time costs for the people involved, causing stress on their families and impacting their jobs or businesses they run.

For individuals and SMEs involved in litigation:

  • losing a court case may mean an inability to pay, resulting in insolvency and business liquidation or personal bankruptcy
  • even for a litigant expecting to win, they may not be able to afford the costs to proceed to trial, or the other (losing) party may not be able to afford to pay a successful judgement.  Suddenly a winning case can become a lose:lose case.

At the point where continuing litigation may not be the preferred outcome, there’s an opportunity to look at the bigger picture and consider alternative courses of action.

Property ownership disputes

It can be necessary for multiple owners to form syndicates for property investment and development. Changes in people’s circumstances can necessitate departures from the syndicate, presenting challenges for the continuing viability of a project and exposing all parties to potential losses.

In these circumstances, innovative solutions are required to meet the financial needs and limitations of co-investors, financiers and other parties to maintain positive outcomes.

 

Settling Liquidators’ claims for voidable transactions such as preference claims and uncommercial transactions

When companies enter liquidation it leaves creditors, directors and other parties involved with the company at a loss. Worse still, they may receive demands from Liquidators to repay money or return assets received from the company prior to liquidation. These types of claims generally fall into unfair preferences or uncommercial transactions. While there are complex legal arguments to be proved by both the Liquidator and the creditor or other party defending the claim, there are also other factors at play in respect of the claim. Creditors that received preferences, may be struggling from bad debts sustained by the company’s liquidation. Liquidators may have limited funds to cover litigiation costs, poor evidence or other issues with their claim. Liquidators are driven by commercial outcomes that recover funds to cover their costs and provide returns to creditors.

Taking a pragmatic approach to dealing with such claims can result in better outcomes and avoid costly legal proceedings.

PPSR disputes with Liquidators

The Personal Properties Securities Act (PPSA) introduced complex issues for businesses whose assets are rented, loaned, leased, used or even just held by another business. In many of these cases, in order to retain ownership the owner of the equipment is required to lodge a PPSR registation of their interest (ie. ownership) in such goods against the company that has possession of them.

If a Liquidator is appointed to a company in possession of another party’s goods with no PPSR registration against them, the Liquidator is most likely able to treat them as company property and sell them. Common business items which ought to be subject to PPSR registrations include:

  • Loans to a company secured over its assets
  • Plant and equipment
  • Trucks, motor vehicles and boats
  • Trading stock (on retention of title terms) and items on consignment
  • Crops and livestock
  • Financial and intangible property (eg. shares, bank account balances and debtors)
  • Intellectual property

Even when a PPSR registration is lodged, Liquidators may have grounds to dispute their validity. It’s therefore up to property owners to take steps to prove validity and enforce their security rights against Liquidators.

 

Family business disputes

It’s very easy for small family disagreements to become huge rifts destabilising businesses with high profile cases often hitting the media. The close personal relationships can cause commercial realities to be ignored in the pursuit of personal agendas which can leave the parties with nothing left at the end.

To avoid tearing a family and its wealth apart, pragmatic commercially beneficial and carefully considered outcomes can be negotiated.

 

Marital separation or family law proceedings which impact on the structure and performance of a business

When a husband and wife with joint business interests separate, things can go one of two ways. We prefer the path that involves delicate handling, careful separation of interests and unwinding of a business from a relationship to preserve its viability. The other option leaves the people involved wishing they took the this path.

We understand the complexities of marital disputes and that each party deserves their wishes to be respected. However, experience has shown that while the emotional impact will fade away, the financial impact of an antagonistic dispute may not. Family businesses can be closed and liquidated and both parties can be left bankrupt – outcomes that impact families and make no one a winner.

 

Need help to resolve your dispute?

 

To understand whether financial dispute resolution may assist your situation, get in touch with us for a free confidential discussion.

Informal Arrangements with Creditors

What are informal arrangements?

There are limited options for viably and effectively restructuring a small to medium-sized business. Company directors who find themselves unable to meet all financial requirements often struggle to deal with their situation, potentially resulting in closure and liquidation of their business. When people need a more flexible restructuring of their trade creditors and other debts to avoid liquidation, informal arrangements can provide the ideal solution.

If a business is struggling to meet its ATO and superannuation payment obligations, as well maintain payments to creditors, negotiating informal arrangements with creditors may ease tight cashflow. Informal arrangement proposals generally involve:

  • paying outstanding debts by instalments over time, and/or
  • an offer in full and final settlement of a debt in circumstances where there are insufficient funds to pay it in full.

Why propose informal arrangements to creditors?

Suppliers and other creditors – generally everyone in business – expect full payment of their debts on time. However, business is unpredictable – customers pay late, unexpected expenses arise, BAS and tax bills creep up – putting stress on cashflow. If cashflow issues arent’ addressed, they can cause a business to become insolvent.

While creditors won’t be happy for their payment to be delayed, they generally understand these challenges and likely experience them in their own businesses. So they’re generally willing to work with you to arrange a payment plan to pay their debt off over time, just like you may do with an ATO payment arrangement.

In circumstances where your business can’t pay all of its debts, negotiations may include a proposal to settle their debts for less than the full amount.

Because these arrangements are done directly with creditors, they do not require a formal insolvency appointment and there is no public record of the arrangement.

 

How do informal arrangements work?

Informal arrangements are flexible in what you can propose in terms of amounts and timing of payments to creditors. However:

  • the business must be able to afford to make the payments as proposed, and
  • creditors need to understand that the offer is the best available option to them in the circumstances.

Informal arrangements can be proposed quickly and efficiently, however they require acceptance of your proposed settlement offer by each of your creditors to be successful. Once creditors have accepted your proposed arrangements, it’s up to you to make the agreed payments and comply with any other obligations.

If one or more creditors reject your proposed offer your informal arrangement may not proceed. Consequently, proposing such an arrangement is more difficult as the number of creditors increases.

 

What’s the process for implementing informal arrangements for a business?

The steps involved in proposing informal arrangements to creditors generally includes:

  1. If legal or enforcement action is underway, contacting creditors for a stay of action, until a proposal can be made,
  2. Assessing the financial and cashflow position, status of liabilities and key challenges,
  3. Determining the amount available to commit to settlement offers,
  4. Providing to creditors background information, an overview of available options and details of the proposal for an informal arrangement,
  5. Potentially negotiating and providing further information until satisfactory agreements are reached with creditors.

If successful, informal arrangements can help you avoid administration or liquidation, and potentially even more drastic turnaround and restructuring measures.

 

How we help

We assist businesses and people to negotiate informal arrangements with their creditors. We are able to assist with the assessment of what payments a business can afford, formulating a payment or settlement proposal and explaining a business’s circumstances to creditors. These arrangements can involve discrete advice to help manage the process, with no one knowing of our involvement. Or if preferable we can liaise with creditors on behalf of the business.

If you think an informal arrangement may be right for you, or you would like information about other options available to deal with your debts, get in touch with us for a conversation about regaining control of your cashflow.

Turnaround and Restructuring

Where does turnaround and restructuring fit in the Australian business environment?

All businesses face challenges, even great ones. Despite your best efforts as a director to maintain your company’s prosperity some challenges can be too much to overcome on your own.

In Australia, turnaround and restructuring engagements are a relatively new concept, particularly for small to medium businesses. They’re aimed at rescuing a business and avoiding liquidation. If this is not possible, a turnaround or restructuring aims to provide better outcomes for the company, its creditors and directors.

In the past, when otherwise good businesses have experienced financial difficulty they have had limited help and options. For a long time the available choices were just voluntary administration or liquidation. While voluntary administration is intended to help businesses overcome their financial difficulties, the high costs, reputational damage and business disruption often meant imminent closure anyway.

In recent years phoenix activity has risen popularity due to the lack of business rescue options. Involving the sale or transfer of assets from a troubled company to a new company, it’s presented as cheap by advisers who promote doing a phoenix. However, it brings its own problems for directors – questions around legality, potential law suits and ASIC prosecution, business disruption and damage to the reputation and relationships of a business and its director. Failure often follows a phoenix.

A turnaround or restructuring engagement lifts the bonnet on your business and tinkers with it to get it running smoothly again. And there’s no better time to consider a turnaround for your business as new Government ‘safe harbour’ measures provide even greater support for directors looking to turnaround their business.

What’s involved in turnaround and restructuring engagements?

Restructuring involves a review of the current capital (debt and equity) structure of a business, and making adjustments if necessary. Businesses often start out with a small loan or overdraft, which may grow over time.

When loans reach maturity or a business outgrows its existing finance arrangements, it can face cashflow or solvency issues. Inappropriate types of funding can be used such as credit cards or letting ATO debts grow. Speaking to the existing bank is the first step. If they aren’t able to meet the financing needs of a business, there are many types of business funding and finance to suit the different needs of business. Determining the right capital structure, seeking out a bank or financier and finalising the deal generally encompass a restructuring engagement. Getting the capital structure right, means a director can get on with the best use of their time, running their business.

Turnaround is a broader engagement, focussing primarily on the strategic, financial and operational management of a struggling but viable business to return it to profitability. Often directors know what’s going wrong with their business but struggle to make the necessary changes. The stages of a turnaround can include some or all of the following:

Stage

Steps which may be involved

1.    Crisis stabilisation

 

· Managing cash
· Short term financing
· Cost reductions
2.    Leadership commitment

 

· Understanding perceived causes of problems
· Committing to the turnaround process
· Making any necessary changes to management structure
3.    Stakeholder management

 

· Communicating the company’s situation and gaining support from stakeholders, primarily banks and financiers, employees and creditors
4.    Reviewing business strategy

 

· Understanding parts of the business which are performing and underperforming, core and non-core
· Refocussing the business on a strategy for success
· Selling or divesting of surplus assets or business units
· Merger or acquisition opportunities
5.    Implementing changes · Making profitability improvements including cost-effective processes
· Operational adjustments for quality and time improvements
6.    Organisational change · Re-establish the culture of the business for sustainable improvements
· Improved training, staff motivation and engagement programs
7.    Financial restructuring · Adjusting or replacing existing finance arrangements
· Obtaining additional finance as appropriate

 

How does a business know if a turnaround is right for it?

The sophistication, time and cost of such engagements depend on the size of the business, whether it’s in crisis and the challenges it’s facing. The first questions to ask are:

  • Could this business be viable in future?
  • Is it worth the time and cost involved to save it?
  • Can it be saved?

Most simply, a business may engage a professional advisor such as us to assist with an ATO payment arrangement, review finance arrangements, get financial accounts up-to-date and implementing some cost-control measures.

At the more complex end, a company may employ a dedicated restructuring officer to carry out a full range of changes to a business, sell or close various parts of the business and continually improve the business over a number of years until it returns to sustainable profit.

Although it can be difficult to face up to your employees and creditors, you may be surprised at the support you’ll receive from them. No one involved with your business wants to see it fail.

Can every business’s problems be fixed?

There are many reasons why Australian businesses face financial issues. Often directors feel like the problems are outside of their control. Bad debts, losing a key customer or employee, ATO debts blowing out, shareholder and director disputes or even changes in personal circumstances such as marital breakdowns. All these challenges can seem insurmountable at time. But they are common problems faced by small to medium business owners throughout Australia. They all have solutions which can be worked through.

Even though no two businesses are the same, the underlying issues that lead to financial distress and company insolvency are. The warning of business distress include:

  • Trading losses in consecutive years
  • Balance sheets with negative assets
  • ATO recovery action including legal action, director penalty notices, garnishees
  • Low working capital (current assets equal to or less than current liabilities)
  • Unsecured creditor actions including statutory demands and winding-up notices
  • Difficulties with secured lenders
  • Landlord arrears and disputes

With timely action and the right advice for your business, you can overcome adverse circumstances, return it to profitability and stabilise your business for long-term success.

Give your business the best chance of success

To give your business the best chance of success, we recommend:

  • Early action before problems worsen to crisis levels.
  • Keep accurate and up-to-date accounts, increase financial monitoring and keep in regular contact with your accountant or financial adviser.
  • Don’t ignore the ATO, superannuation obligations, the landlord or other creditors.
  • Seek professional advice from your accountant, turnaround and restructuring professional or insolvency practitioner.
  • Don’t put in your own money or more finance without fixing the causes of the problems.

 How Cactus Consulting helps businesses survive and thrive

We understand that needing turnaround and restructuring advice isn’t necessarily a sign of poor management. Despite your best efforts as a company director, external market forces or changes in technology can leave you high and dry, in need of financial and strategic management solutions to quickly deal with your company’s challenges – and fast.

At Cactus Consulting, our experienced team focuses on providing detailed and tailored options, solutions and successful outcomes for our clients.

The two key objectives of our approach are to produce to achieve the survival and future profitability of your business or if not achievable, to better financial outcomes than liquidation. To achieve these key objectives, we work closely with directors, management and key stakeholders to understand your business, diagnose and prioritise the key challenges you are facing, create business and cashflow stability, act on your behalf in dealing with banks, the ATO and creditors, and work through a turnaround or restructuring plan that addresses core issues for long-term success.

Where appropriate we work with accountants and solicitors to ensure our advice is tax effective and appropriate legal documentation is used.

Why Cactus Consulting?

It can be hard to know who to turn to for help when your business experiences financial difficulty. Cactus Consulting is the one stop shop for small to medium businesses in need of debt relief, distressed business assistance and insolvency advice. We’re the first contact for accountants and lawyers when their clients require assistance beyond their usual services. Our team is comprised of experienced accountants and insolvency professionals working closely with lawyers, financiers and other professionals to provide everything you need to turnaround your business.

We recognise that while the core issues behind corporate insolvency tend to be similar, every business will take a different path to resolve the problem. That is why our service takes into account every aspect of your company’s difficulties, and why strategies are developed to your specific goals.

Don’t let your business become cactus

Getting help starts with a phone call. If you want to discuss the issues keeping you up at night and avoid liquidation, get in touch with us for a free confidential discussion.

 

Pre-Insolvency Advice

Why get pre-insolvency advice?

Before making the decision to appoint an administrator or liquidator to a company, directors should ensure they understand their options and make the right decision. Feeling overwhelmed by the situation and appointing an insolvency practitioner to take control of a company’s circumstances may feel like the only available option. However, such appointments have serious and irreversible consequences for a business and potentially its directors.

How can pre-insolvency advice help me?

Our approach is to look for the best outcomes realistically available in a company’s circumstances to minimise the financial impact on the company, your creditors and if appropriate, the directors personally. A broad range of solutions is available to deal with a company’s debts and these should be considered in every case. We provide advice and assistance to directors making these decisions for their business. Solutions may include:

  • Refinancing by directors or external parties
  • Entering into informal arrangements with creditors or proposing payment arrangements to the ATO and other creditors
  • Implementing a turnaround or restructuring strategy
  • Sale of business and/or assets for fair value on the open market or to a related entity
  • Voluntary administration and deed of company arrangement
  • Liquidation

 

Do I need to worry about pre-insolvency advice?

Directors need to make sure their actions and advice are legal. Directors of insolvent companies have a range of duties to act in the interests of the company’s creditors and to avoid trading while insolvent. Failing to understand these duties, or willfully ignoring them, carries risks which may result in legal claims and court proceedings, fines by ASIC and potentially jail time. Additionally, directors need to be cautious of any related party transactions which may be considered to be ‘phoenix’ activities. The ATO, ASIC and other Government bodies are closely following actions of companies and their directors to prevent and prosecute illegal phoenix activity.

 

How do I ensure the pre-insolvency advice I’m getting is legal?

The best way to ensure your advice is legal is to seek out qualified professionals to provide it. Insolvency lawyers, liquidators and members of ARITA (Australian Restructuring, Insolvency & Turnaround Association) are the best source of information. They’re experienced, understand the law and options, hold professional indemnity insurance and are regulated by their respective professional bodies.

Some accountants are also comfortable providing pre-insolvency advice.

 

Want to find out your options today?

You can be much more confident and better understand the impact of your decisions when you have the right advice. We assist clients to understand and implement any of the above solutions to deal with their company’s debts. We’re available to discuss your circumstances and options on 1300 4 CACTUS or on these contact details.

Liquidation

What is liquidation?

When companies experience financial difficulty they may face an application by a creditor to wind-up the company, or alternatively the company may appoint a liquidator itself to wind up its affairs. However, this is a last resort for companies.

Before a liquidator is appointed, there are various alternatives directors may consider to determine the best course of action for their company. Often directors would like to continue operating the company or its business, or continue using its assets. Or perhaps they are concerned about the impact of liquidation on them personally. We can guide you through the options available to assist you to determine the right course of action for your company.

How do I know my company is insolvent?

Your company is considered insolvent if it is unable to pay its debts as and when they fall due. This generally means that if your company is behind in supplier payments, has outstanding and overdue ATO or superannuation debts or owes other amounts it cannot pay, it may be insolvent.

As a director, what should I do if I suspect my company is insolvent?

As a company director you have a fiduciary duty to act in the best interests of your company at all times. If you believe or suspect that your company is insolvent and do not take proactive steps to ensure that the company does not incur any further debts, when there is little or no prospect that these debts will be paid, then you may be held personally liable for the damage caused to the company as a result of insolvent trading.

If you suspect that your company may be insolvent, you should seek advice immediately. We can discuss your company’s circumstances with you and give you further information to determine whether your company is insolvent.

What options are available to my company?

Various options may be available to deal with a company in financial difficulty depending on your circumstances. These generally include:

  • Do nothing
  • Refinancing by directors or external parties
  • Turnaround or restructuring strategies
  • Sale of business and/or assets for fair value
  • Liquidation
  • Voluntary administration and deed of company arrangement

Failing to take appropriate action may result in directors being exposed to liabilities or committing serious offences. If you’re company is experiencing financial difficulties or you are concerned that it may be insolvent, you can discuss your company’s circumstances with us and get assistance to determine whether it is appropriate for you to take action under one of the above options. The key to the best outcomes is acting early.

How so I appoint a liquidator?

Shareholders can resolve to appoint a liquidator to their company, often by signing a Resolution for the liquidator’s appointment. This can generally be done in a prompt and timely manner.

A creditor who is owed over $2,000 (and certain other parties) can apply to Court to have a liquidator appointed to a company.

How much does it cost to put my company into liquidation?

If your company has available assets of a sufficient value to cover some or all of the costs of liquidation, then it is likely that there will be no up-front costs to the directors or shareholders to appoint a liquidator to the company.

If your company has little or no assets, then a liquidator will generally require funds be made available to pay the costs of acting as liquidator of the company.

What will happen if my company is placed into liquidation?

  • If your company is placed in liquidation, then an independent person (the liquidator) is appointed to the company. The liquidator will:
  • Take control of the company’€™s assets.
  • Examine the events and circumstances preceding the winding up of the company.
  • Examine the company’€™s financial position in order to determine whether the company traded whilst insolvent.
  • Report to creditors regarding the results of the liquidator’s investigations and the prospect of a return to them.
  • Providing for a fair and equitable distribution of the company’€™s property between creditors.

What are the benefits of appointing a liquidator to a company?

There are a number of benefits appointing a liquidator to a company may have, including:

  • It is a way in which a director can avoid personal liability under a Director Penalty Notice issued by the ATO.
  • It may limit or reduce the directors’€™ exposure to insolvent trading.
  • It may limit or reduce the directors’ liability for certain offences under the Corporations Act 2001.
  • It results in an independent person being appointed to the company, who will conduct an orderly winding up of the company’s affairs.
  • It avoids the company being placed in liquidation by the ATO or another creditor.

What are my responsibilities as a director once my company is placed in liquidation?

If your company is placed in liquidation, as a director you will have duty to assist the liquidator during the liquidation process. You must also complete a Report as to Affairs form (setting out the company’s assets and liabilities) and promptly provide the liquidator with all of the books and records of the company.

What is insolvent trading?

Insolvent trading is the continued trading of a company which is unable to pay its due and payable debts. If a company trades after it becomes insolvent, you and any other directors can be held personally liable for insolvent trading if the company is placed in liquidation.

The liquidator may pursue legal action against you and the other directors for the total of the company’s unpaid debts that were incurred after the company became insolvent up to the time it enters liquidation.

What is a director penalty notice?

Read about ATO director penalty notices here.

As a director, am I liable for my company’s unpaid debts?

Directors are generally not liable for a company’€™s debts, unless:

  • Debts which you have personally guaranteed.
  • Your liability to the ATO under a director penalty notice.
  • Your liability for insolvent trading.
  • You have a loan account for funds you withdrew from the company.
  • Certain personal liabilities to the QBCC (Queensland Building and Construction Commission), or under a Deed of Covenant & Assurance executed at the request of the QBCC

If my company is placed in liquidation am I excluded from being a director of other companies?

A director of a company which is placed in liquidation, who has not been the director of any other companies which have been wound up in insolvency in the last seven years, will generally (subject to certain exceptions), not be disqualified from being a director of further companies.

However, it is common for the ASIC to seek to disqualify a person from acting as a director for up to five years, if that person has been the director of two or more companies which have been placed in insolvent liquidation in the last seven years.

This does not apply to directors of companies which have been wound up by way of a (solvent) members voluntary liquidation.

 

Want to find out more about liquidation?

Why not pick up the phone and get in touch to have your questions answered in a no-cost confidential discussion.

 

Voluntary Administration

What is Voluntary Administration?

Voluntary administration is an alternative to liquidation for dealing with an insolvent company’s financial difficulties. It’s a process that provides an opportunity for a company’s business, property and affairs to be administered in a way that:

  • Maximises the chances of a company and/or its business continuing, or if this is not possible;
  • Results in a better return for the company’s creditors than would result from the immediate winding up of the company.

If you want to rescue your company, then Voluntary Administration may be the most appropriate option for you.

When should I appoint an Administrator?

As a company director you have a duty to act in the best interests of your company at all times. If you believe or suspect that your company is insolvent and do not take proactive steps to ensure your company does not incur any further debts, you may be held personally liable for the damage caused to the company as a result of insolvent trading.

If you suspect that your company may be insolvent, you should seek advice immediately. Various options are available for dealing with your company’s financial difficulties. We can discuss your company’s circumstances and help you decide the best option to deal with your company’s difficulties.

How do I know my company is insolvent? 

Your company is considered insolvent if it is unable to pay its debts as and when they fall due. This generally means that if your company is behind in supplier payments, has outstanding and overdue ATO or superannuation debts or owes other amounts it cannot pay, it may be insolvent.

We’ve provided a full list of indicators of insolvency at the following link.

What are the main steps in the Voluntary Administration process?

The administration process usually lasting between 25 and 30 business days and involves the following main steps:

  •  Appointment of Administrator’s, generally by the company’s directors.
  • Notification to all creditors of the Administrator’s appointment
  • First meeting of creditors held within 8 business days of the Administrator’s appointment.
  • Directors formulate and submit a proposal for a deed of company arrangement (“DOCA”) to Administrators if intended.
  • Administrators conduct thorough investigation into company’s affairs, potential realisations and recoveries available in liquidation and a comparison and opinion of the proposal for a DOCA as an alternative to liquidation.
  • Second meeting of creditors held within 25 business days of the Administrator’s appointment for creditors to vote on whether to accept the directors’ proposal for a DOCA.
  • Company executes DOCA within 21 days or is placed in liquidation from that date. The Administrators generally become the DOCA Administrators or the Liquidators.

How do I appoint an Administrator?

If the directors believe their company is insolvent, or will become insolvent, they may appoint an Administrator to their company.

An Administrator may also be appointed by a secured creditor who holds security over most of the company’s property, or by a liquidator or provisional liquidator previously appointed to the company.

How much does it cost to put my company into voluntary administration?

An Administrator is personally liable for any costs he incurs during the period of his appointment. Accordingly, he needs to be confident he will hold sufficient funds to cover these costs and also his professional fees for acting as Administrator.

If your company has sufficient funds and other assets that can be sold to cover the expected administration costs, then it is likely that there will be no up-front costs to the directors or shareholders to appoint an Administrator to the company.

If your company has little or no assets, then an Administrator will generally require that funds be made available to pay his costs of acting as Administrator of the company.

What will happen if I appoint an Administrator to my company?

When an Administrator is appointed to the company:

  • The Administrator will take control of the company’s assets and affairs.
  • Creditors are prevented from taking action to recover the company’s debts during administration.
  • The directors’ powers are suspended, however they have ongoing duties to their company and the Administrator.
  • If the company is operating, the Administrator will decide whether to continue trading the company’s business.
  • Stakeholders will be notified of the Administrator’s appointment.
  • The company’s affairs will be investigated to determine what assets it has and what potential recoveries may be available if a liquidator is appointed.
  • The Administrator will liaise with the directors regarding the proposal for a DOCA.
  • Two creditors’ meetings are held. At the second meeting creditors vote to decide whether the company will execute the DOCA proposed by the directors, or be placed in liquidation.
  • If the DOCA proposal is accepted, control of the company is returned to the directors, the company is required to comply with the terms of the DOCA and the funds received in the DOCA are distributed to creditors by the DOCA Administrator.

What are the benefits of appointing an Administrator to my company?

The benefits for a company entering administration are:

  • Maximise the chances of the company continuing in existence, possibly through a proposal for a Deed of Company Arrangement.
  • Provide for a better return to creditors than liquidation.
  • Limit or reduce the directors’ liability for insolvent trading.
  • Be a way in which a director may avoid personal liability under a Director Penalty Notice issued by the ATO.
  • Creditors are prevented from taking action to recover the company’s debts during administration.
  • An independent person is appointed to take control and review the company’s affairs to provide information to assist creditors determine the future of the company.

What are the main terms of a Deed of Company Arrangement?

A proposal for a Deed of Company Arrangement will generally seek to provide for a better return to creditors than would be available if the company is placed in liquidation through:

  • Voluntary contributions to the company by its directors, members or other parties; and/or
  • The sale of some or all of the company’s assets; and/or
  • Contributions to pay creditors from the company’s future trading profits; and/or
  • Certain creditors agreeing not to claim in the Deed of Company Arrangement e.g. related party creditors.

What happens if creditors accept my proposal for a Deed of Company Arrangement?

A proposal for a Deed of Company Arrangement is accepted if a majority in number and value of creditors vote for it at the second meeting of creditors in the administration. If the proposal is accepted:

  • It is binding on all of the company’s unsecured creditors, however secured creditors such as banks and financiers are not bound unless they agree to be.
  • Control of the company is returned to the directors and it may continue trading without the Administrator’s involvement.
  • The company is required to comply with the terms of the deed of company arrangement which are primarily to make the proposed payments.

Is administration right for my company?

Before appointing an Administrator, you should consider the various alternatives available to best deal with your company’s financial difficulties which may include:

  • Doing nothing
  • Refinancing by directors or external parties
  • Turnaround or restructuring strategies
  • Sale of business and/or assets for fair value
  • Liquidation
  • Voluntary administration and deed of company arrangement

Often directors would like to keep operating the company or its business, or continue using its assets. Or perhaps they are concerned about their personal exposure in the case of an insolvency event impact. We can guide you through the options available to assist you to determine the right course of action for your company.

Failing to take appropriate action may result in directors being exposed to liabilities or committing serious offences. If you’re company is experiencing financial difficulties or you are concerned that it may be insolvent, contact us for a free and confidential discussion to assist you decide whether voluntary administration or another of the above options are right for your company. The key to the best outcomes is acting early.