Frequently Asked Questions
Please find below a list of frequently asked questions that we often get from our clients.
If you have any specific questions that you would like answered, please contact our friendly team on (08) 6228 1700 or book an Appointment with us.
How do I know if my business is insolvent?
A business becomes insolvent when they are unable to pay their debts when they become due and payable. Contributing factors to insolvency can be poor cashflow management, lack of savings or bad debts. When faced with an insolvent company, the best thing to do is to seek professional advice.
What is insolvent trading?
Insolvent trading occurs when a business continues to operate whilst they are unable to pay their debts when they become due and payable.
What is a Report on Company Activities and Property (ROCAP)?
A Report on Company Activities and Property (ROCAP) is prepared by a director for the external administrator within 5 business days of appointment or for a longer period if the administrator allows. The document contains information outlining the company’s assets, such as cash at bank, sundry debtors, stock, property, plant and equipment, and its liabilities, for example employee entitlements, unpaid tax and accounts payable.
What is a Creditors’ Voluntary Liquidation?
A Creditors’ Voluntary Liquidation (“CVL”) is the process of converting a company’s assets into cash and utilising the funds to repay as much of the company’s debts as possible. A liquidation is initiated by a company when it is insolvent and unable to pay all of its creditors in full.
What are the directors’ responsibilities during a liquidation?
Once a liquidator has been appointed, control of the company’s assets and affairs rests with the liquidator. It is the responsibility of the director(s) to provide all books and records in possession to the liquidator and notify them where other books relating to the company are. The director(s) are required to give the liquidator information about the company’s business, property, affairs and financial circumstances.
When do I need to appoint a liquidator?
It is necessary to put your company into liquidation when the company is struggling to pay its debts when they fall due. This can become apparent if the company does not have sufficient assets to settle its liabilities when they are due and payable.
How will my employees be paid if my company is in liquidation?
Eligible employees are able to lodge a claim for their unpaid wages and entitlements through the Fair Entitlements Guarantee (“FEG”) scheme of the Attorney-General’s Department.
Eligible employees may be able to claim the following through FEG:
- Unpaid wages - up to thirteen (13) weeks;
- Unpaid annual leave and long service leave;
- Payment in lieu of notice - up to five (5) weeks; and
- Redundancy pay - up to four (4) weeks per full year of service.
Eligibility requirements to access the FEG scheme are as follows:
- You were an Australian Citizen or held a permanent visa or special category visa that allows you to stay and work in Australia at the time your employment ended.
- You have lodged an effective claim within twelve (12) months of the date your employment ceased or the date of liquidation (whichever is later); and
- You are owed one of the following entitlements: wages, annual leave, long service leave, redundancy or payment in lieu of notice.
You will not be eligible under the FEG scheme if, for example:
- You were a contractor; or
- You are (or were within 12 months before the date of liquidation) a director of the company, or a spouse or relative (as defined by the Corporations Act 2001 (Cth)) of an employee director of the company.
Information sheet to be downloaded from - https://www.ag.gov.au/industrial-relations/publications/general-information-claimants
What about unpaid superannuation?
The FEG scheme does not cover unpaid Superannuation Guarantee Contributions owed by the employer. If you are an employee and have unremitted employer superannuation contributions you should:
- contact the insolvency practitioner managing your former employer’s affairs to discuss your rights as an employee creditor; and
- visit the ATO website (ato.gov.au/super)
The liquidator’s office will liaise directly with the Australian Taxation Office on behalf of employees regarding any unpaid Superannuation.
What is a Simplified Creditors’ Voluntary Liquidation?
A Simplified Creditors’ Voluntary Liquidation (“SCVL”) is a liquidation process that has been streamlined to cater for winding up companies with less than $1,000,000.00 in liabilities. Along with Small Business Restructuring (“SBR”), the SCVL process was introduced on 1 January 2021.
What are the eligibility requirements of a Simplified Creditors’ Voluntary Liquidation?
- The company’s debts cannot exceed $1,000,000.00 which includes amounts relating to termination of employees (including prior to termination);
- The company will not be able to pay its debts in full within 12 months of the start of liquidation;
- The company has to be up to date with the lodgement of all returns, notices, statements, applications or other documents that are required by taxation laws;
- The company cannot have been under restructuring or the subject of a simplified liquidation in the past 7 years; and
- Current and recent directors cannot have been the director of a company that has been under restructuring or the subject of a simplified liquidation in the past 7 years.
What is Small Business Restructuring?
Small Business Restructuring (“SBR”) allows eligible businesses to restructure their debts in a streamlined process, whilst allowing the director(s) to remain in control of their business. The aim of a SBR is for the company to settle its debts with creditors and to maximise the chance of a return to profitable trading. Along with Simplified Creditors’ Voluntary Liquidation (“SCVL”), the SBR process was introduced on 1 January 2021.
What are the eligibility requirements of Small Business Restructuring?
- Have no more than $1 million in debts;
- Have paid the employee entitlements that are due and payable;
- Be up to date with lodgement of all returns, notices, statements applications, and other documents required under the Income Tax Assessment Act 1997;
- Have not undergone restructuring or been subject to a simplified liquidation process within the past seven (7) years.
- Not have any current and/or former directors (acting in the past 12 months) of the company who have been a director of a company that has been under restructuring or used simplified liquidation process within the preceding seven (7) years.
What is a Voluntary Administration?
A Voluntary Administration (“VA”) is a process initiated by the directors of a company when they believe that the Company is or is likely to become insolvent. This means that the company is unable to pay its debts or is likely to become unable to pay its debts.
A VA gives a company an opportunity to consider its financial position and its future. Creditors will be given an opportunity to vote on the future of the company.
The process of a VA usually lasts 25 to 30 business days.
What are the benefits of a Voluntary Administration?
A Voluntary Administration is not the end of a business, it can provide a company with the additional time and space required to potentially steer away from liquidation. The process allows for an external party (“the administrator”) to review the affairs of the company and liaise with the creditors, relieving the pressure on the director(s). During the administration period, the administrator assumes full responsibility for trading on, incurring liabilities and the decision-making process.
How does Voluntary Administration end?
A Voluntary Administration (“VA”) usually ends once a decision is made to either give control of the company back to the director(s), execute a Deed of Company Arrangement (“DOCA”) or proceed to liquidation. A VA can also conclude via a court order to end or appoint a liquidator for the company to be wound up, if the second meeting of creditors is not arranged within the stipulated timeframe or if the DOCA is not signed within twenty-one (21) days of the second meeting.
What is a Deed of Company Arrangement?
A Deed of Company Arrangement (“DOCA”) is a binding agreement between a company and its creditors. The arrangement allows for a better outcome for its creditors if the terms of the DOCA are complied with. A DOCA sets out the repayment timelines, terms, debt forgiveness also how and when the DOCA will be terminated. The terms of a DOCA allow the company to continue trading while fulfilling its debt obligations to its creditors.