The 5 essential steps to take before appointing a liquidator – Insolvency/Bankruptcy

For company directors who have reasonable grounds to suspect
they’re at risk of business insolvency, forging a path forward
can feel like navigating a series of blind corners. In times of
stress and uncertainty, RCR Lawyers help illuminate uncharted
terrain, guiding you on a path to the preferred destination (and
avoiding costly false steps along the way).

WHAT IS A LIQUIDATOR?

If you’ve exhausted all other avenues for your company and
you (along with a majority of shareholders) decide it’s time to
wind things up via a creditors’ voluntary liquidation, a
liquidator will be appointed. As an independent person appointed to
oversee the dissolutions of a company that can no longer pay its
debts when they fall due, a liquidator has a range of roles and
responsibilities under Australian law. Empowered to act on behalf
of a company, controlling its activities, money and assets, their
primary function is to wind up the company and to generate a return
for creditors by selling (or liquidating) any company assets.

They also have a legal obligation to investigate the
company’s financial affairs (which can involve examining the
past behaviour of directors), an important factor for any director
considering voluntary liquidation to be mindful of.

Before taking the significant step of appointing a liquidator,
we recommend the following:

1. Get clarity on your situation:

As a rule of thumb, liquidation should only be used as a last
resort. There are several potential benefits of liquidation in circumstances where
a company has no realistic chance of avoiding insolvency. However,
you should first consider your individual circumstances and
consider alternative options like restructuring or voluntary
administration.

RCR Lawyers are seasoned in advising businesses about their
financial conditions, providing detailed analyses, and exploring
potential alternatives to the irreversible path of appointing a
liquidator.

1. Seek professional advice:

Once you’ve established a relationship with an insolvency
expert, you can delve deep into the detail of a prospective
liquidation. It’s essential you feel confident your legal team
have he experience and insight to understand the nuances of
Australian insolvency law. RCR Lawyers have a proven track record
in commercial law, and have helped countless businesses
successfully navigate times of financial crisis, including
liquidation.

1. Evaluate your liabilities and assets:

It’s crucial to take thorough inventory of your debts and
obligations, and any tangible or intangible assets, before
contacting a liquidator. Ultimately, all these items will ‘come
out in the wash’ once the liquidation process begins. Enlisting
the help of lawyers to accurately assess your strengths and any
exposures from the outset means you can avoid unpleasant
surprises.

Once you’ve assessed your current affairs and sought
preliminary advice from legal professionals, it’s time to take
action to safeguard your own interests.

1. Protect your Directors:

Although the company structure is designed to separate
directors’ personal and business lives, liquidation can result
in company directors being held personally liable. For example, if
the liquidator determines a director knowingly continued trading
while insolvent, they can be compelled to pay debts from their
personal assets. To avoid this nightmare, it’s essential you
get the right advice and craft a proactive strategy with the
support of experienced insolvency lawyers.

1. Communicate with Stakeholders:

Transparent communication with stakeholders is key to a
successful liquidation process. Keeping shareholders, creditors,
and employees abreast of developments isn’t just a legal
requirement; it’s critical to maintaining trust and support
from your stakeholders. Lawyers can assist you in developing a
communication strategy that’s both effective and compliant with
Australian regulations.

By considering these five steps with a lawyers’ support, you
can approach the complex process of liquidation with confidence,
knowing your taking the right steps forward for you, your business,
and all interested parties.

The expert team at RCR Lawyers stands ready to support your
business, offering advice that is practical, comprehensive, and
tailored to your unique circumstances. In an area of law fraught
with potential pitfalls, our mission is to bring clarity,
competence, and compassion, always aiming to deliver the best
possible outcomes for our clients.

Don’t face the daunting prospect of business liquidation
alone.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.