Is your company experiencing financial difficulty?

August 2018 | Scott Freidman

There are many reasons why a company might find itself in financial difficulty. Even if your company appears to be running well, it is important to know what to do if things go wrong. Adopting a ‘head-in-the-sand’ approach won’t make things better. How and how quickly a business reacts to periods of financial pressure determines its success and ability to recover.

Generally speaking, when a company is experiencing serious financial difficulty, company directors have a number of options. These include voluntary administration, voluntary liquidation, receivership or the company can be ‘wound up’ by creditors and placed into liquidation. What exactly do these terms mean?

Voluntary administration

Voluntary administration involves the appointment of an external administrator who takes full control and attempts to save the company from insolvency. If this isn’t possible, a voluntary administrator will attempt to give creditors a better return than they would have otherwise received had the business been placed into liquidation. This is achieved through a deed of company arrangement.

Voluntary liquidation

Voluntary liquidation is the self-imposed winding up of a company and occurs when company members no longer want to continue trading. Voluntary liquidation can only occur when a company is solvent.

‘Winding up’ or liquidation

A company is placed into liquidation when it has become insolvent and therefore cannot pay its creditors (even through a deed of company arrangement). A company can be ‘wound up’ either by resolution of its members or by the court (usually following notification from unpaid creditors of the company).

Receivership

Receivership occurs when an independent receiver is appointed by a secured creditor to take control over some or all of the company’s assets. The receiver’s role is to collect and sell those ‘charged assets’ to repay the debt owed to the secured creditor.

If you require further information or if your business is experiencing financial difficulty please contact me (sfreidman@hflawyers.com.au) or Steven Nemes (snemes@hflawyers.com.au) at Harris Freidman Lawyers – (02) 9231 2466.