Bankruptcies: small business legal questions

Discussion in 'Legal Issues' started by TMNT, 8th Nov, 2015.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If a company wound up it dies and so does its debts.
    No lenders will lend to a company without a personal guarantee, other than private arrangements. Even Alan Bond had to give personal guarantees.

    Yes there will be a black mark on the directors credit files - in that it will show they were a director of a company that went into liquidation.
     
  2. Moist

    Moist Well-Known Member

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    Thanks Terry.

    One more thing: If the company that is being wound up clears its debt to creditors before winding up, will there still be a black mark on the directors' credit file? What will it say, the individual was a director of a company that went into voluntary liquidation and all creditors were paid in full?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The only thing that will appear on the person's credit file is that the person was a director of X Pty Ltd. It may then say that the company was in liquidation etc. lenders would then do a search on the company credit file and find the status of the company. This would show it was in administration or liquidation and then out again. It won't mention anything about creditors being paid.
     
  4. willair

    willair Well-Known Member Premium Member

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    But Alan Bond always had a problem with his statements of financial performance and the profit and loss statements,,..
     
  5. Moist

    Moist Well-Known Member

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    So if a company winds up voluntarily without any debt, is this the same as putting the company into liquidation?

    More importantly, how can future lenders see that the director paid out all his debts before winding up the company, and thus is still credit worthy? Or is the fact that he was a director of a company that was wound up a black mark per se?

    In other words, will future lenders be open to an explanation of what happened to the wound up company? Or will the lender just see that the individual was a director of a wound up company and just say "no thanks!"
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No.

    Lenders will be able to see if a receiver or liquidator had been appointed to the company. If there was then they may ask for the final report. If the director is not liable for any debt then they may still lend despite the 'black mark'.

    Actually I am doing a loan for a client now where this is the case and the lender hasn't even queried it.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    I thought that he had a problem with recalling the facts.
     
  8. willair

    willair Well-Known Member Premium Member

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    Wealthy was meaningless to a visionary like Bond,plus he had a very good understanding of the law and just how far he could push the limits,and i guess if you sign something without knowing what you have signed,then you must find someone to rely on for advice as to what is being signed,then through no fault of your own had no understanding of what they signed in the first place,memory short term may work that way.. non est factum..
     
  9. Moist

    Moist Well-Known Member

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    Ah OK, so I'm assuming that if one was to wind up a company voluntarily, the company does not go to a receiver or liquidator?
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No, it just dies a quiet death.
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Trading while insolvent and owing unpaid PAYG / Super can result in personal tax debts by the Directors. The ATO often use a Directors Penalty Notice to circumvent "clever" directors who phoenix a venture. Its often not as simple as thinking that liquidation ends a debt. And in many instances (eg a lease) the Director gives a personal guarantee and so they cant just walk away from a financial obligation. Then in some industries (construction) there are special laws which can apply to unpaid debts to rank differently to that of a unsecured creditor ie : Security_of_payment

    I have seen Directors do some silly things thinking they can avoid debts. To find it just triggers a bigger issue.

    Lenders can easily do a Director / Officer search for any company - Past or present and its history. They do it as part of normal credit checking.
     
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  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Unless its a false statement. Form 6010 lies can result in criminal charges.
     
  13. larrylarry

    larrylarry Well-Known Member

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    What do companies like fox symes charge for assisting companies to file bankruptcy?
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Depends on how complex it is. Hard to say really, but I have a client who paid around $10k
     
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  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I dont believe FS do company liquidations.
    Liquidations are not a recovery they are a final solution. (Akin to a morgue v a hospital)
    Liquidators will want to be paid...Usually $10K plus....very much an emphasis on the plus.
     
    Last edited: 12th Aug, 2016
  16. larrylarry

    larrylarry Well-Known Member

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    yes, liquidation.
     
  17. JDM

    JDM Well-Known Member

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    Keep in mind that ASIC will usually disqualify a person from being a director if they were a director of two phoenix companies that have gone into liquidation within the last seven years. All this means in practice is they start using their spouse's name or a fall person to phoenix the next time or to ensure they fall outside of the seven year window.

    As mentioned, it is probably most common in the building industry but it's also something that both ASIC and the ATO are well aware of.