Liquidation is a serious decision to make for any kind of business. However, to determine whether to dissolve a company based on facts or myths associated with liquidation needs a second thought. According to a study, 20% of new businesses collapse within 5 years. This is very scary for people considering starting a new business.
Company liquidation occurs often and impacts many businesses. You will find plenty of resources regarding insolvency but everyone is not accurate. Let’s debunk the common liquidation myths and gain an encouraging picture for those directors considering this option.
Liquidation means the director goes bankrupt
It is a false statement! However, there are several aspects that you need to understand. Liquidation does not mean the director will personally go bankrupt. The business is a different legal entity, so a director will not be directly responsible for the debt of the company. Nevertheless, there are several exceptions accompanied. If the director –
- Has given a personal guarantee to creditors then they will be personally responsible for this debt.
- Is a subject to recovery claim by the liquidator for wrongful trading activity [act not done in the interest of creditors]?
If you are worried about losing your company or assets, call Insolvency Experts. They have been helping directors of different sectors all across Australia for more than 25 years in the liquidation process.
You will not get credit if your company goes into liquidation
It is a fake statement in the majority of circumstances. Business insolvency can impact the ability of the director to get finance but banks still lend. There are many finance brokers, who have helped in financial arrangements for directors or companies that got loan refusals because of their entity ending in liquidation.
You cannot pay the creditors post-liquidation
It is not true! Some directors pay creditors after liquidation because they desire to trade continuously with them through other entities. Post-liquidation payment accomplished by a 3rd party cannot be claimed by a liquidator.
Liquidation end in creditors chasing you
This is untrue and fear-mongering information! Liquidation is not an easy process but no creditor will hassle you for their lost money. It is against the bylaw. You are not personally liable for the liquidation. The burden is on the business you are involved in.
Some creditors feel aggravated with the allocated amount they receive [or don’t receive because funds get distributed as per their hierarchy] from asset proceedings post-liquidation. Even in such a condition, it is illegal to make attempts to retrieve any owed debt.
ATO [Australian Taxation Office] gets reimbursed first
For general tax debts, this is not true. The tax debt of ATO ranks equally to the other unsecured creditors. The only exception is that ATO collects unpaid superannuation the company owes to its employees if it is delayed. The ATO collects SGC or Superannuation Guarantee Charge before the proceedings from the sale of assets get distributed among the suppliers and creditors.
Several unregulated and unqualified insolvency consultants claim to help directors in financial crunches. Insufficient knowledge about the liquidation process can be damaging, so ensure to hire a licensed and regulated insolvency expert. It gives peace of mind that the process is conducted as per the ‘Corporation Act’.