THE IMPACT OF LEGAL TROUBLE ON SOLVENCY
Some companies become insolvent due to poor business plans, a decline in market demand or bad management. Other companies may find themselves in legal difficulties which consume vital cash flow and lead to a company being unable to pay their debts and subsequently being forced into external administration. If your company finds itself embroiled in legal troubles, it is important to conclude proceedings as soon as possible to free up your cash. Money tied up in legal expenses is unable to support your business and can lead to delayed payment to creditors, disgruntled suppliers and even the appearance of a director penalty notice in the event of debts remaining outstanding against the Australian Taxation Office (ATO). Menzies Advisory offers business advisory services in the resolution of matters placing financial strain on a company and returning the organisation to solvency.
There are a number of legal problems which can affect businesses, of which we will provide a brief overview here. If your business is experiencing any of these, contact a business advisory service immediately. Former employees who were let go without final termination forms can cause serious problems if they so desire. Harassment or discrimination cases should be taken seriously by a business but wherever possible resolved in-house. Regular training sessions, competent legal departments and human resource services mitigates the chances of these cases being taken to court or even happening in the first place. Patent or copyright issues often impact cutting-edge industries such as technology. Thorough research and diligent development teams should be employed to reduce the risk of violating existing patent or copyright material. Finally, dissatisfied customers can file class action lawsuits which eat up valuable business time and money.
Complex legal proceedings are expensive which is how they can lead to external administration. They can direct cash flow away from the business and lead to a company being unable to pay their outstanding debts including the PAYG withholding tax or superannuation guarantee charges. In these cases, a company will become insolvent and will be forced to enter external administration, pursued by the ATO. A Director Penalty Notice will be issued holding the director personally accountable. Due to the obvious cause of insolvency stemming from legal trouble, it is often possible to resolve the issue and deliver a corporate turnaround which returns the company quickly to profitable territory. However, it is crucial to come to a swift legal conclusion to enable cash to become available again to resume trading. Particularly when a Director Penalty Notice has been delivered and the director themselves may be liable, a business advisory service should be retained to resolve the issue as quickly as possible.
When extensive legal proceedings drain a business financially, it will become insolvent and be placed in external administration. However, often the legal dispute continues and still requires money. In addition to the costs of the administration, therefore, the company will still be required to pay legal fees for the ongoing case. Lawyers for businesses are aware of the dangers of becoming entangled with complex legal problems and will seek to avoid this at all costs. If your legal team have expressed concerned about your company’s involvement in a dispute, contact Menzies Advisory today. We offer holistic business advisory services for companies throughout Australia and attempt to give second chances to the companies whom we believe can return to profitability through our services.
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Registered Liquidators are experienced accountants, licenced and regulated by the Australian Securities and Investments Commission (ASIC). They are appointed to take over the running of insolvent or failed companies and oversee the final period before all affairs are finalised and the trading body is dissolved. Registered Liquidators must be appointed in the event of a Creditors Voluntary Liquidation to resolve any debts accrued by the company in the most efficient way possible. A Creditors Voluntary Liquidation (CVL) is the most common liquidation appointment type. In the event of a company entering insolvent external administration through CVL, it is the task of a Registered Liquidator to manage the finances and affairs of the body in a fiduciary capacity. After an Extraordinary General Meeting between the shareholders of a company, a Special Resolution will be passed which symbolises the instigation of the process by which the company will be wound up: liquidation. The directors, creditors and shareholders then step away from the organisation which has entered liquidation and their responsibilities are passed to a Registered Liquidator. This professional winds up all ongoing affairs which can include the collection of any outstanding debts and the disposal of company-owned assets. A Registered Liquidator must provide a document titled Consent to Act as Liquidator before they are appointed. Throughout all liquidations, the Registered Liquidator must file relevant documents with ASIC as well as providing ASIC with their yearly return. This enables the Commission to ensure only the highest quality of Registered Liquidators are operating and providing services throughout Australia. ASIC keeps a Register of Liquidators under the Corporations Act 2001 upon which every person is provided with a Registered Liquidator Number. In order to be registered, the person must demonstrate their relevant qualifications, experience, abilities and knowledge. Each registration is valid for 3 years, after which the Liquidator must reapply to maintain a valid license. All Registered Liquidators hold an accountancy degree as well as valid membership to the Institute of Chartered Accountants and/or CPA Australia. In the event of an organisation becoming insolvent, the appointment of a qualified, experienced and professional Registered Liquidator will ensure the subsequent process of winding up the company is completed correctly and responsibly. A Registered Liquidator is capable of completing this complex task efficiently and with minimal unnecessary stress to the directors and shareholders. For more information, contact Menzies Advisory Liquidators & Receivers where our Principal is a Registered Liquidator, Official Liquidator and has been a Certified Practicing Accountant for over 35 years.
Sometimes shareholders and company directors decide to cease trading despite the continued viability of the company. When this decision has been made, it is best to bring in external administrators to complete the Members’ Voluntary Liquidation process. By hiring qualified and experienced professionals, the process of finalising all company affairs, deregistering your company and the distribution of remaining funds amongst shareholders will be completed in a timely, commercially beneficial and legally correct fashion. While the terms ‘administration’ and ‘liquidation’ are most often associated with insolvent companies, it is also possible for the affairs of solvent companies to be wound up in this matter. There are various reasons why a business may choose to wind up rather than be sold as a going concern or continue trading. These include: Redistributing capital tax free Restructuring a company Business is no longer trading/required Bringing a company to its legal end – once deregistered it cannot be reinstated When a reason is decided upon, the majority of directors are obliged to sign a Declaration of Solvency form, stating the company is in a position to pay all existing debts within the upcoming year. Dormant companies may also be deregistered through this external administration process. Winding up a solvent company through external administration is easier and simpler than an insolvent company because, by definition, the company is in a position to repay any and all outstanding debts. 75% of company members are required to vote in favour of bringing in an external administrator at a meeting in regards to the Special Resolution. Once a company has entered the Members’ Voluntary Liquidation, the company can begin to be wound up by an external administrator. The appointed administrator will meet with any creditors and take care of any legal paperwork with the court, government and ATO. Once a company has been wound up, the remaining value of the assets can be distributed among shareholders. At this point the company will be legally deregistered. The external administrator is, by definition, independent and impartial. Their sole task is to preserve the company’s assets, comply with all legal obligations and return all funds to creditors and/or shareholders. Therefore, the external administrator cannot be someone with a conflict of interest or some form of duty within the company itself. Impartiality ensures the correct protocols are followed and the liquidation is completed in compliance with all laws. If you are considering placing your solvent company into voluntary external administration, contact Menzies Advisors today and find out more about how our expert liquidators and administrators can help wind up your company as quickly and commercially successfully as possible.
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
Menzies Advisory in Gold Coast Brisbane Melbourne and Sydney are specialist Liquidators
