Working at a Liquidation Firm (my experiences)

Hi all,

I worked for approx. 3 years at a liquidation firm so though it might be useful to share some of my experiences to help those consider and make decisions about asset protection. Firstly, I no longer work in liquidation, to be honest I found the job a bit depressing, they have their place in the business world to help punish the scammers and keep things in check etc., but when well intentioned/good people get caught up in the liquidation/bankruptcy process its a real heart-bleeder. The law, courts, ASIC, liquidators alike offer very little sympathy to people that have fallen into the pit that is bankruptcy/liquidation, so from my experiences do everything you can to avoid it - it tears families and lives apart, not to mention he wealth you may have built through your life.

So here are some of the 'tricks of the trade' if you will, from the inside. If you have assets you're a target. The first step for a liquidator is to check whether you own a house, shares or anything of significant value, if you don't, then you're pretty well off the hook with nothing to lose unless you've been involved in some kind of criminal activity, meaning you'll probably get referred to the police (this certainly happens).

Second step, if you own a house under your name or related entity, whether a director in liquidation (of a company) or bankrupt personal estate then you're in the firing line. If there's only minimal equity i.e. 20-30% of the house value then the liquidator probably wont bother pursuing you any further, with the cost hassle of selling the house. However, a high value property could change this. Property name searches are conducted all around Australia, so interstate houses under your name will get flagged. Interestingly, if you owned overseas property or shares its extremely unlikely they'll find this in a search unless they found it as part of your 'foreign sourced income' as part of your tax return, which the liquidator can get from the ATO. But foreign assets are certainly a method to protect assets as they're much more difficult to find. Any assets in Australia under your name or related entity will shine like a bright beacon. Remember, liquidators have access to ALL information, if you don't provide it they can get it from the ATO, ASIC, banks, land titles office etc. They wield a lot of power in getting information. From there it gets ugly, I won't go into details about the corporations law but if you were a director of a company under liquidation, then liquidators are experts at convincing the courts you traded whilst insolvent making you personally liable, just as if you were being bankrupt under a personal estate.

Liquidators come upon hundreds of ASIC and ATO referrals which take time to administer and don't result in any fees. When a liquidator comes upon a bankrupt or director with significant assets they'll move heaven and earth to get at those assets to make up for all the loss time administrating the cashless pies.

Some strategies to protect assets and how well they worked (my experience only):

- shared ownership: if you own 50% equity then that portion of the property will be attacked unless the spouse is able to pay up the amount in cash. All negotiable based on valuations by both parties. Rare that the cash can be sourced so house will normally get sold in this situation, particularly as the liquidator may argue more than 50%, as they seek to prove the director/bankrupt maintained all running costs of the property.

- house ownership under spouse only: okay if 100% under spouse, although if spouse is not working and entirely dependent, then the liquidator can build a strong case that you share at least some ownership in the property by virtue that you run the operating costs. Ensure all house expenses come from the spouses bank account to build evidence to counter this argument. Still, spouse ownership is overall not a solid form of asset protection from what I witnessed.

- family trust: from my experiences trusts offer genuine asset protection against liquidations and bankruptcies. I can't recall assets being attacked by liquidators held under a trust, often it would be explored, review the Deed etc., but thrown into the 'too hard basket' when liquidators considered all the solicitor fees involved in trying to pursue avenues to attack assets within the trust. Of course, assuming a corporate trustee here. Trustee under personal name different story. Loans to the trust were often successfully recouped though (or at least a portion of), much better to gift.

- assets in super (pretty much impenetrable). Self-managed super may need to be more carefully managed however to ensure asset protection.

Overall, as a property investor I wouldn't ever buy under a personal name, spouse or mine (even if I didn't run a business). Too many things can get thrown at you in life, which could send you into financial strife. Just some I could think of; teenage son/daughter drinks and drives and is in an accident leaving a passenger crippled for life and subsequently sue you as the guardian for damages (drink driving voids insurance). Teenager throws a wild party when you're away for the weekend and one of the 'guests' slips in the bathroom cracks their head and parents sue (no liability insurance on your home versus an investment property). Forget to pay the registration renewal on your car, easy to do, and you're involved in a serious accident and are sued by the other driver for negligence (no longer covered by the 3rd party bodily insurance). Are found to be negligent for any number of reasons by your insurer following a crash and insurance becomes void leaving you personally liable, i.e. car not adequately maintained, unapproved modification, using your phone leading up to the crash etc., etc. Then, if you run a business/company, add in all other types of liabilities; health safety of staff, negligence of your service/repair job, trading insolvent etc.

I realise, I've seen the most unlucky in society both rich and poor get into situations of liquidation and bankruptcy. But am so surprised to see how little people pay attention to asset protection. I buy under trusts, the land tax is a pain but when you consider that you could lose everything in a flash then its a cost I'm willing to wear. For me having assets is to provide a form of security in my life, if those assets aren't protected then there's no security. 'A fool and his money are soon parted'. We all do foolish things sooner or later so better to prevent that phrase catching you out.

Keen to hear from any lawyers or accountants to share their experiences from liquidations and bankruptcies. Real life experiences are good way to help people think about the importance of asset protection. There's no point building wealth if it can't be preserved.

 

Awesome and very insightful post. Thanks for sharing.

 

Its good to hear an insider's perspective.

I am a lawyer interested in asset protection and advise on this area, but I can't recall any of my clients ever getting sued. My thoughts are constantly changing but I think asset protection is of a secondary importance to saving tax - and even estate planning. You have to consider the asset protection aspects on death as well as bankruptcy.

Did you even encounter the gift and borrow back strategy? Clawback provisions under the bankruptcy act, conveyancing act and corporations act?

I think a key is to make yourself look like a person with little assets so that the liquidators and trustees don't dig. This is probably half of the key to asset protection, deflect deeper investigation.

 

Thanks for posting, interesting view.
Though it comes from an insider with some added paranoia (normally I'm the paranoid in these contexts) from the daily dealings with instances that seem to happen very sporadically from the outside.

 

So is it correct to assume if you are operating a business in Australia, better keep the earnings, in whatever form eg., property, overseas?

 

Thanks for sharing
Good to hear about Trusts

The other side… I know someone who invested $5M in this ponzi scheme, looks like his lost the lot. I know rather stupid, greed messes with you


The guy was not even registered to operate as a FP. its on 60 minutes this week. I think this will be a case where the money is overseas, no or little hope

$240m taken from WA investors in ‘Ponzi scheme’

 

Very interesting read.

 

I worked at tiimes with a Partner that was a liquidator. Often an apparent issue leads to a "claim" that can be extensively watered down. The stories of cents in the dollar are true. As long as the liquidator gets paid. Most often liquidators use threats to coerce action to avoid court as its too costly and even uncretain. The liq has to brief solicitors and then barristers and so on.....And that eats into their fee potential. And they are personally liable for loss. So they avoid it like a pox. Moving assets away from the owner make it slower and harder to attack. That takes more time, more money. BUT when its worth pursuit they will. The review of what went wrong divides into two camps. The reapers who stripped the entity and those who just fail. The reapers are usually detected by forensic review early on. If they did they will be pursued.

One thing that concerns me is a liquidator can sell tangible assets back to the former Director and its not a public auction. Or once creditors are paid they hand the keys back to the Director and away they go again. Eg machinery and fittings and plant could be valued low and for convenience sold to the former Director far below true value. Especially specialised gear. Excuse include difficulty to value and best value being as a going concern. If the creditors go away its heaven. Liquidators can do more once the creditors back off. So the liquidator wil see who will pay to do that. Do they sell assets or look for money to be repaid by the reaper ? Liquidation can be friendly or unfriendly. If the Director appoints a friendly professional (by agreeing to pay them!!) then the outcomes can be very different to a hostile one (appointed by a bank or ATO for example)

Its a game. And the rules suck.

 

Absolutely agree with all your comments Paul. The liquidation game is strange one. Totally different outcome if a director see's the warning signs early on and engages a liquidator versus court appointed liquidator through bank or ATO which tends to be much more 'aggressive' against the director and assets. Certainly an easier way out for directors to seek the advice of a liquidator early on, in such cases liquidators seem to act more in the interest of the director then the creditors.

 

Don't blood sucking leaches look after themselves before their clients (the directors or creditors)?

 

Thanks for your insight.

Your experience reflects mine. Owning property directly puts you in the firing line.

Trusts with a corporate trustee and super work surprisingly well.

People should definitely consider asset protection equally with tax. I typically encounter one client every two to three years going into liquidation.