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Pursuant to Section 260-5 of the Taxation Administration Act 1953, the Australian Taxation Office has the power to issue a Garnishee Notice in order to collect taxes due by a company (the taxpayer). The two most common Garnishees are as follows;

1. Garnishee to Debtors – the ATO can collect its debt through a company’s debtors, by providing these debtors with a letter requiring that the monies owed by the debtor to the company are not to be paid to the company, but instead, paid directly to the ATO.

2. Garnishee to Bank Account – the ATO can collect funds that a company holds in a bank account by providing a notice to the Financial Institution requiring that monies held in a designated bank account of the company be paid directly to the ATO.

A Garnishee Notice can have catastrophic effects on your Company’s business. If a Garnishee Notice has been issued to either your debtors or your bank where your accounts are being held, you may  find yourself having insufficient or no cash to pay employees or other critical creditors and causing significant disruptions to your business.

If a Garnishee Notice has been issued in relation to a tax debt owed by your company or you would like more information in respect to Garnishee Notices please contact us.

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A Voluntary Administration is an avenue for an entity experiencing financial difficulty to appoint an independent External Administrator to take control of the affairs of the company to determine the future direction of the company.

The most common circumstance is an appointment made by an entity’s director(s) who believe the company is insolvent or likely to become insolvent in the near future. However, less commonly, a secured creditor, Liquidator or Official Liquidator or Provisional Liquidator may also appoint an administrator.

Objective of a Voluntary Administration

A Voluntary Administration aims to maximise the chances of the company, or as much as possible of its business, continuing in existence; or if it is not possible for the company or its business to continue in existence – results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

The role of an Administrator

During the Administration period the company is provided interim “relief ” from its financial liabilities while the Administrator takes full control of the company in order to work out a way to:

– Salvage all or part of the Company and/or its business; or
– Restructure the Company in a way that allows the Company to continue;
– Reorganise the Company’s business into a viable business model; or
– Introduce measures that will maximise the return to creditors in an orderly winding up.

The aim is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed straight into liquidation.

At the conclusion of their appointment, the administrator will report his/her findings to creditors and provide creditors with a recommendation as to the best possible avenue for the company going forward.

Length of the Administration period

The Administration period, or convening period as it is also referred to, is the period in which the Administrator has to deal with the affairs of the company, conduct investigations into the affairs of the company and report his/her findings to creditors. The length of the convening period is:

– 20 business days beginning on the day after the administrator is appointed; or
– If the appointment takes place in the month of December or within 25 business days from Good Friday, then 25 business days beginning on the day after the Administrator is appointed.

In some circumstances where the Administrator is not satisfied that  there is sufficient time to deal with the affairs of the company, he/she may seek and order from the Court extending the convening period to allow for the affairs of the company to be managed appropriately.

Reports and Meetings during Administration

The administrator reports to creditors by drafting and circulating reports advising of his/her recommendations and findings and by convening meetings of creditors in order for the administration of the company to be discussed in an open forum. There are two meetings held during a Voluntary Administration, an initial meeting, and a major meeting where the company’s future is decided by way of voting on one of the following resolutions;

– The company execute a Deed of Company Arrangement; or
– The administration should end; or
– The company be would up;

The above is a general summary of Voluntary Administrations. Our consultants are highly experienced in Voluntary Administrations. If you would like more information, including the advantages a Voluntary Administration may have in your circumstances, please contact us.

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In this section, two types of Liquidations are discussed, being a Creditors Voluntary Liquidation and an Official Liquidation – both being as a result of a company’s insolvency. The Corporations Act dealing with Liquidations is fairly voluminous and technical as such we have only provided a general summary. Our consultants undertake numerous Liquidations each year and can provide you with additional information. Should you require any further information, please contact us.

1. Creditors Voluntary Liquidation

A Creditors Voluntary Liquidation is initiated by the company when the directors believe that the company is insolvent, and the company and/or business should not remain in existence.

The members resolve by special resolution at an extraordinary general meeting to appoint a Liquidator and place the company into Liquidation in order to wind down the affairs of the Company.

Objective of a Creditors Voluntary Liquidation

The objective of a Creditor’s Voluntary Liquidation is to:

– Wind up the affairs of a company; and
– Provide for a fair and equitable distribution of the company’s property amongst its creditors.

The company must cease to carry on its business except so far as is in the opinion of the Liquidator required for the beneficial disposal or winding up of the business.

Role of a Liquidator

Upon the appointment of a Liquidator, the Liquidator takes full control of the Company’s business and the powers of the directors and other officeholders are suspended. The role of a Liquidator is to:

a) Wind up the affairs of a Company;
b) Conduct investigations into the affairs of the Company and voidable transactions (such as preference payments, uncommercial transaction and insolvent trading)
c) Provide for a fair and equitable distribution of the Company’s property amongst its creditors.

Length of a Creditors Voluntary Liquidation

There is no prescribed timeframe under Corporations Law for a Liquidator to carry out the winding up of a company. The length of a Creditors Voluntary Liquidation depends on the timeframe needed by a Liquidator to fully wind up a company’s affairs.

Reports and Meetings during a Creditor Voluntary Liquidation

The Liquidator must cause a meeting of the creditors of a company in liquidation to be convened within 11 days from the date of the passing of the resolution by a company’s members.

Further reports and meetings at the discretion of the Liquidator can be held after this meeting subject to the Liquidation. A report and meeting is held once the Liquidation is finalised.

2. Official Liquidation

An Official Liquidation is a Court appointment that takes place after a person/entity, usually a creditor of the Company, applies to the Court for an order that the affairs of a company be wound up in insolvency. In most cases, an Official Liquidator will be appointed following a winding up application being filed by the creditor after the non-compliance with a statutory demand.

An entity can only be placed into Official Liquidation by the Supreme Court of each state in Australia or the Federal Court of Australia. Most notably and unlike a creditors voluntary liquidation, court liquidation forces the winding up of a corporation against the wishes of corporate management or owners and when a winding up application has been filed with the Court, the directors/members of a company can no longer voluntarily select a liquidator to wind up their company. However, a company in certain circumstances can appoint a Voluntary Administration before the hearing of a winding up application.

Once an Official Liquidator is appointed, the Official Liquidation would have the same objective as a Creditors Voluntary Liquidation noted above, and the Official Liquidator would have the same role as he or she would have in a Creditors Voluntary Liquidation. However, if an Official Liquidator does not have funds, there is no requirement for the Official Liquidator to hold any meetings of creditors or issue any reports.

Our consultants are highly experienced in Liquidations. Should you require any further information, please contact us.

Directors may be found liable for insolvent trading if they allow a company to incur debts at a time when the company was insolvent. Allowing for an insolvent company to incur debts whilst it is insolvent is a breach of directors’ duties.

A company is insolvent when it cannot pay its debts as and when they become due and payable. The test in simple terms is an inability to pay debts when the debts are ‘due and payable’. The Corporations Act 2001 defines solvency and insolvency in the following terms:
Section 95A – Solvency and insolvency

(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.

Insolvent trading claims normally arise after a company has gone into Liquidation, and are commenced by Liquidators. However an insolvent trading claim can also be initiated by a creditor if not undertaken by a Liquidator (with the consent of the Liquidator). In addition, despite being rare, insolvent trading claims in some instances can also be initiated by the Australian Securities & Investments Commission for criminal breaches (whereas actions initiated by Liquidators are civil actions – meaning “punishment” to Directors is only made by way of monetary amounts).

An insolvent trading claim made by a Liquidator is calculated by way of compensation of the debts incurred and remaining unpaid after a date of insolvency. For example in very general terms, if a company is identified as “insolvent” on 1 January 2010, and the company continues to trade for 3 months until Liquidation and incurs $500,000 of unpaid debts, the Liquidator may have a claim against the Director for the sum of $500,000 as a damages claim.

Insolvent trading is a very technical and difficult area of the Corporations Act 2001. There have been numerous cases that have dealt with insolvent trading. As such the above is only a very general introduction.

If you are concerned that your company may be insolvent, or may become insolvent, or you need further information, we highly recommend that you call us so that advice provided to you is tailored to your circumstances.

We also provide a Solvency Analysis Service that may assist you in this regard.

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A Deed of Company Arrangement (DOCA) is a binding arrangement between a company and its creditors setting out how the company’s affairs will be dealt with to resolve the company’s debt problems without the need for liquidating the company.

A DOCA is formulated and proposed by the Director(s) and/or a third party during the Voluntary Administration of a company and is set out to creditors in the Administrators major report. Creditors then are asked to accept the terms of the DOCA by passing a resolution that the company execute a DOCA at the major meeting of creditors.

Objective

A DOCA aims to maximise the chances of the company, or as much as possible of its business, continuing and provide a better return for creditors than from a winding up. A common DOCA proposal provides for a lump sum payment after the signing of the DOCA with periodic payments over a time period specified in the DOCA, at the conclusion of the DOCA period a percentage return/dividend to unsecured creditors is made.

A DOCA can also include recapitalisation of a company and the sale of all or a portion of the company’s assets. If the company’s business continues to trade, DOCA contributions can be made from ongoing trading profits.
A DOCA will end when:

– The terms of the DOCA are met in full by the company;
– It is terminated under the terms of the DOCA due to a default;
– The creditors resolve to terminate the DOCA due to a default; or
– The Court makes orders that the DOCA be terminated due to a default or any other reason.

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The DOCA will set out who is to be the Deed Administrator. Generally the person who is appointed as the Voluntary Administrator will be appointed as the Deed Administrator.

The Deed Administrator’s role is to ensure that the company complies with the DOCA. The Deed Administrator usually does not play an active role in the management of the Company as the company is normally handed back to the director(s).

When all of the DOCA funds are received, the Deed Administrator is responsible for paying the Deed funds to creditors as set out in the DOCA.

The above is a general summary of Deed of Company Arrangements. Our consultants are highly experienced in implementing successful Deed of Company Arrangements. If you would like more information or would like to explore the avenue for your company to execute a Deed of Company Arrangement, please contact us.

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Our consultants can assist in improving the performance & positioning of your business. Contact us to receive information on how we can help improve the performance of your business.

Key services offered by our consultants in improving business performance are:

– Advise businesses how to reduce losses / increase profits
– Teach businesses how to achieve overall improvement and how to measure it
– Teach improved management skills
– Costings
– Profit Centres
– Business plans

The key units of an organisation that are analysed for improvement are as follows:
>Financial >Operational >Sales >People >Technology

Our consultants can provide your business with access to an extensive national and global network of multi-disciplined professionals so that you are provided with the right advice tailored to your specific needs for business performance improvement. We understand that every business is different and therefore we have teamed up with external partners enabling a diverse background harnessing collective operational and financial expertise to be able to deliver significant added value to any type of business within short time frames.

The combination of expertise from our diverse personnel facilitates you working with people that have ‘real’ operational and financial experience. Each assignment is undertaken with a considered approach and on a case by case basis in consideration of the entity’s unique circumstances, goals & objectives.

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