FAQ

FREQUENTLY ASKED
QUESTIONS

Can I become personally liable for a debt with the ATO?

If any BAS return is not lodged within 3 months of its due date, then the directors of the company will become automatically liable for the PAYG tax withheld and any unpaid superannuation contributions.

The ATO will start its collection process by issuing the director with a “lock down notice”. As soon as a company director receives a “lock down notice” the director becomes personally liable for the debt set out within the notice. The company director will need to pay for the debt from their personal resources, but if the director doesn’t have the funds (or cannot raise the funds within a reasonable period of time), then they may need to consider one of the following options:

  • Personal bankruptcy or
  • Debt agreement or
  • Personal insolvency agreement

Call us today to discuss your insolvency needs

If you are concerned about personal liability arising from a company tax debt, then call us on 1800 003 883.

We handle all types of insolvency assignments. Our onsite insolvency practitioner has over 20 years experience in the insolvency profession. Call us today and we will happily discuss your concerns.

Why be concerned about a debt with the ATO?

The Australian tax laws were overhauled in 2012. The new laws mean that if any of your company’s BAS have not been lodged within 3 months of their due dates then the company director will become personally liable for the unpaid PAYG tax withheld as well as any unpaid superannuation contributions.

Accordingly, company directors now have a real incentive to make sure that company BAS returns are lodged on time with the ATO. If the BAS is lodged on time (or within 3 months of the due date), but the amounts due have not been paid, then the company director can still avoid personally liability by appointing a liquidator or appointing an administrator within 21 days of receiving a ATO penalty notice.

The only good news with these new laws is that they do not extend to unremitted GST, so a company director cannot become personally liable for unremitted GST.

How do I know if my company is insolvent?

Some of the most common signs of insolvency include:

– Poor Cash Flow
– Unpaid or overdue Taxes
– Unpaid or overdue employee entitlements
– Suppliers stop supplying or demand cash on delivery
– Inadequate Company Books & Records

If your company is experiencing any of the above, you may be headed towards insolvency. To assess whether your company should enter into liquidation, give Insolvency Services Australia a call on 1800 003 883. We can look into your case, determine your solvency and assist you with the most appropriate course of action.

What are the consequences for not keeping proper books and records?

The Corporations Act sets out the director’s duties ‘to keep books and records’. Failure to do so can be disastrous for a company director as it provides a liquidator with a presumption that the company was insolvent from the time that the books were not maintained properly.

This means that as a company director you could become personally liable for the debts incurred by the company for the time period that you failed to keep proper company records. Furthermore, the liquidator can file a request with the Australian Securities and Investments Commission for you to be prosecuted.

Therefore, if you are concerned that your company may become insolvent you should ensure that your books and records are brought up to date. For more information on the consequences of insolvent trading, speak to the specialists at ISA. Contact 1800 003 883.

What are my options if my company is insolvent?

If you have established that your company is insolvent, you should take immediate steps to ensure that it does not continue to trade whilst it is insolvent. Allowing a company to trade whilst it is insolvent can have serious consequences for a director.

Your options may include to:

– Close the business by initiating a company liquidation
– Keep trading by entering into a Voluntary Administration and restructuring to become profitable.

So if your company is insolvent, or likely to become insolvent, give the insolvency specialists at ISA a call today and we will happily provide a no-obligation quote.Contact 1800 003 883.

Why would I voluntarily appoint a liquidator?

If the company is insolvent and unable to pay all of its creditors in full, it should be immediately placed into voluntary liquidation by the company directors. If the directors delay they could become guilty of insolvent trading which has serious implications for the directors. One might also choose to appoint a liquidator when there are serious disputes between directors and/or shareholders that are likely to adversely affect the company’s ability to continue trading (this is known as a Provisional Liquidation).

If the company is not insolvent but the directors wish for it to be deregistered, a liquidator can be appointed to oversee a “solvent liquidation”, which is essentially placing the job of realising the company’s assets and paying out the debts into the hands of a registered liquidator. Alternatively, the company can pay out all of its debts itself and then simply apply to ASIC to be deregistered.

What do I do if I have received a Garnishee Notice?

The only way to put a stay on a garnishee is to declare yourself or your company insolvent and enter into a formal insolvency arrangement. For an individual this would take the form of either bankruptcy, or a Personal Insolvency Agreement. For a company, the garnishee notice can be stopped if the company appoints a voluntary administrator.

If you have received a garnishee order and are having money taken out of your wages or your company’s bank account, you need to seek professional advice as soon as possible. It may be possible to come to a formal arrangement with the ATO that will cancel out the garnishee you have received.

If you are the director of a company, you need to act much more quickly. At the first sign of potential insolvency, call an insolvency expert to discuss your options. If the ATO issues a garnishee notice before you have attended to your company’s situation, you will not be able to put a stop to it, and the resulting effects could permanently damage your business.

To find out more about garnishee notices and how ISA can help you, contact us on our 24/7 hotline on 1800 003 883.

What is a Garnishee Notice?

If your company is insolvent and having difficulties honouring its tax debts, it is at risk of receiving a garnishee notice from the Australian Taxation Office (ATO).

A garnishee notice allows the ATO to directly recover funds for an outstanding tax debt from a person or business. Once the garnishee notice has taken effect, the ATO can remove money from your bank account and/or collect payments from your debtors until your tax debt is paid in full.

It is also possible for an individual to receive a garnishee order from the ATO or a creditor who has obtained a court judgement. Generally speaking, it will be issued to your employer, and the funds needed to recover the debt will be taken directly from your wages.

What is the Difference between Company Liquidation and Administration?

This is one of the most common questions the team at ISA are asked.

Liquidation and Voluntary Administration are the two options available to a company encountering irreparable financial distress.

The two major differences between liquidation and voluntary administration lay in the level of control held by the company director and the future of the business. Owing to the benefit of allowing businesses companies to resume trading following the completion of liquidation processes, voluntary administration is regarded as the best option for businesses who are facing insolvency and whose restructuring will prove worthwhile. For businesses companies who have reached a point of no return however, liquidation is recommended.

How long does it take to complete a Company Liquidation?

The time it takes to complete a company liquidation will vary depending on how complicated the company’s affairs are. There is no set time within which the liquidation needs to be completed and as such, it can range from 12-18 months (for an average sized company that is fairly uncomplicated) to longer (if, say, litigation is needed or other matters need to be resolved). The main factors that affect the time-frame of the liquidation are the structure of the company, its dealing prior to being liquidated and whether it will be necessary to litigate.

In addition, the liquidator must wait for a clearance from ASIC before they can finalise the liquidation. Once they receive this they can call the final meeting of creditors and members of the company, and then complete the process.

To better understand the process of a liquidation and the role you play in it, feel free to contact us at anytime on 1800 003 883.

How are the funds paid out in a company liquidation?

When a company is placed into liquidation, the liquidator has the task of selling the company’s assets and using those funds to pay out the costs of winding up the company. There is an order in which the funds are to be paid out, which is set out in the Corporations Act (Section 556) and is to be strictly followed.

The following costs are to be paid in this order before any ordinary unsecured creditors can receive any funds. This includes an order of paying any expenses incurred by the liquidator, any petitioning creditor’s costs and legal fees, other professional fees and employee wages and entitlements.

If, after all of the above have been paid in full, there is not enough money left over to pay 100% of ordinary unsecured creditor claims, then the unsecured creditors will receive a partial dividend on a pro-rata basis.

For a more detailed account of fund distributions or if you are considering a company liquidation and have concerns about your liabilities being paid in full, call us on 1800 003 883.

When should I place my company into liquidation?

If you are wondering if you should place your company into liquidation, your first step is to determine whether or not the company is insolvent.

To be insolvent is to be unable to pay your debts as and when they fall due. In this instance, the company director/s need to consider taking the active step of appointing a liquidator on a voluntary basis. To not do so is to place oneself at risk of “insolvent trading”, meaning that the company has incurred debt during a time in which it was insolvent.

If there is a chance that your company is either insolvent or close to it, call us today on 1800 003 883. We can carry out an assessment of the company’s affairs and confirm whether or not company liquidation is necessary.

We are available 24 hours 7 days a week for free and confidential advice.

Are there any benefits to voluntarily placing my company into liquidation?

If your company is insolvent, or is likely to become insolvent, the natural inclination is to continue trading in the hope that things will turn around. There are, however, many reasons why making the decision to voluntarily place your company into liquidation is a more beneficial course of action. These include:

  • Avoiding civil penalties of $200,000 for trading whilst insolvent.
  • Avoiding becoming personally liable for certain debts.
  • Gives the director a sense of control over the process.
  • Allows directors to appoint a liquidator of their choosing
  • Reduces the stress associated with running an insolvent company
  • All creditor contact is placed in the hands of the liquidator
  • Peace of mind that the company’s affairs are being wound up in an orderly and professional fashion.

If you have been considering placing your company into voluntary liquidation you should seek professional advice. We can help you to determine if your company is insolvent and discuss the potential benefits of making the decision to wind it up. We are available 24 hours 7 days a week on 1800 003 883for free and confidential advice.

Can I become personally liable for company debt?

A Pty Limited or Limited company is essentially an entity unto itself, meaning that any assets or debts belong to the company. However, there are some instances in which a company director can become personally liable for company debts:

  1. Personal guarantee
  2. Insolvent Trading
  3. ATO debt

Personal Guarantee

When you sign a personal guarantee with a creditor or trade supplier, you are making yourself legally liable for the company debt. This means you are promising creditors that you will personally pay the debt if, for some reason or another, the company is unable to.

Insolvent Trading

A company director can be found guilty of insolvent trading if it can be proven that:

  1. The company incurred a debt whilst it was insolvent;
  2. The director was aware, or should have been aware, that the company was insolvent at the time; and
  3. The director failed to prevent the company from incurring the debt.

If the court finds a company director guilty of incurring debt whilst insolvent, they can become subject to penalties including:

  1. Civil penalties up to $200,000;
  2. Compensation proceedings – the company director could become personally liable, by order of the court, for a compensation payment to the value of debts incurred whilst the company was insolvent;
  3. Criminal charges – the company director could be referred to the Director of Public Prosecutions and become subject to a criminal prosecution.

ATO Debts

If the company fails to lodge its Business Activity Statements (BAS) with the ATO within 3 months of their due dates, any company directors will become personally liable for any unpaid tax deducted from employee’s wages (PAYG). They will also be liable for any unpaid superannuation contributions.

If you are acting as director of a company that is potentially insolvent and/or facing liquidation, you should contact us immediately to get advice on any debts that you may become personally liable for. We are available 24/7 on 1800 003 883.

How much will it cost to liquidate my company?

There are many factors that will influence the cost of a company liquidation. This includes:

  • whether the company is insolvent or solvent
  • the value of the assets; and
  • the number of creditors involved

Every situation is going to be slightly different, so the best way to get an indication of the cost is to call us on 1800 003 883. Don’t appoint another liquidator without talking to us first. We will beat any written quote – guaranteed!

Our advice line is open 24 hours a day.

How does a company enter liquidation?

There are two ways a company can be placed into liquidation: voluntarily, or involuntarily.

  1. Creditors Voluntary Liquidation (CVL)

Voluntary liquidation occurs when the directors and shareholders make the decision to have the company wound up. If 75% of the shareholders approve of the liquidation the vote will pass and the liquidator gets appointed immediately.

If a company is liquidated voluntarily the directors and shareholders can appoint a liquidator of their own choosing. This is the fastest and most cost-effective method for winding up a company.

  1. Court Liquidation (or Compulsory Winding Up)

A company liquidation is involuntary when it is forced upon it by the company’s creditors. When an application has been made by a creditor to have the company wound up, the directors no longer have the option of doing it voluntarily. They will also be unable to appoint a liquidator of their choosing; as it will be in the hands of the creditor who made the application to court..

For 24/7 advice on voluntarily placing your company into liquidation, call us on 1800 003 883.

What happens during the liquidation?

The goal is for the company’s available funds to be distributed in a fair and orderly manner. The liquidator is responsible for selling the company’s assets and distributing the proceeds in the prescribed manner. The costs and expenses of the liquidator are paid first, after which any excess funds (if available) are paid to the company’s priority creditors and then any ordinary unsecured creditor claims.

The liquidator will also investigate the company’s affairs and ensure that all of its actions were legitimate and fair, in particular, payments to its creditors. If there is evidence that any creditor received a payment that was in preference to the other creditors, the liquidator can apply to the Court to have that transaction reversed so that the funds can be distributed fairly. This also applies if it is found that a director entered into an uncommercial or unfair director related transaction.

Who can liquidate my company?

As ordered by the Australian Corporations Act, a company liquidation can only be handled by a Registered Liquidator who is licensed by the Australian Securities and Investments Commission (ASIC). Once appointed, the liquidator is the only one authorised to deal with the company’s affairs – the company directors will no longer have any power.

What is liquidation?

The term “liquidation” refers to the legal dissolution of a company that is insolvent, which means that it does not have enough in the way of assets to pay all of its creditors in full. This is more commonly referred to as “winding up” or “dissolving” a company You would only need a liquidation for a Pty Limited or Limited company.

What are the Advantages of Voluntary Administration?

Voluntary Administration offers a range of significant advantages:

  1. Continued Trade

Under Voluntary Administration, your company is given the opportunity to restructure itself as it works to settle its debts, enabling it to continue to trade into the future. This isn’t possible for the long term with a company liquidation, which involves selling off the company’s assets and completely shutting down its operations.

  1. Reduce Debt Amount

A Voluntary Administration provides directors with an opportunity to put forward a proposal to the company’s unsecured creditors. It is sometimes possible to settle the company’s debts for less than the original amount. This is known as a Deed of Company Arrangement (DOCA).

  1. It Doesn’t Last Forever

A Voluntary Administration comes to an end once the company’s creditors either approve a Deed of Company Arrangement; vote to hand the control of the company back to the directors; or, in some circumstances, decide that the struggling company is unable to continue trading and vote to place it into liquidation.

Am I eligible for a Personal Insolvency Agreement?

Not every individual is eligible to apply for a Personal Insolvency Agreement (PIA). To qualify for a Personal Insolvency Agreement, a debtor must:

  • Have unsecured debts of more than $118,063.40
  • Earn an income of more than $88,547.55 p.a. (after tax) or $119,138 p.a. (before tax)
  • Have available equity in assets of more than $236,126.80.

Additionally, you may are able to propose a PIA if you have not applied for another one in the past six months and have residential or business connections to Australia.

If you do not meet any of these amounts you may need to consider a Debt Agreement. For more information on a PIA and how ISA can help you to propose one, contact us today on 1800 003 883.

What are the advantages and disadvantages of a Personal Insolvency Agreement?

A Personal Insolvency Agreement (PIA) is an excellent alternative to bankruptcy for those who stand to be particularly adversely affected by it, such as those with a property or who need to travel overseas often. Not only will a PIA help you save your house but it will also stop your creditors from forcing you into bankruptcy. So long as you maintain your mortgage repayments and complete your PIA your home should be safe. On the other hand however, during the PIA process travel and borrowing credit will be restricted.

For more information on Personal Insolvency Agreements and how ISA can help you to propose one, contact us today on 1800 003 883.

What is a Personal Insolvency Agreement?

A Personal Insolvency Agreement (PIA) is a legally binding arrangement with your creditors whereby you will commit to paying a certain amount in order to settle your unsecured debts. Your creditors then freeze your debts so that they will stop accruing interest and charges, and over the course of the agreement they will receive a percentage of the frozen debt.

In order for a PIA application to be accepted you need at least 75% of your creditors (in value) and 50% (in number) to vote in favour of it at a creditor meeting. Once it has been accepted the PIA becomes binding on all unsecured creditors, even those who may have voted against it. Whilst you are under the protection of an active PIA no unsecured creditor is able to try to have you made bankrupt.

For more information on Personal Insolvency Agreements and how ISA can help you to propose one, contact us today on 1800 003 883.

What is a Bankruptcy Notice?

If someone owes you (the creditor) $5000 or more, you can apply online to the Official Receiver for a bankruptcy notice. This bankruptcy notice requires the debtor to pay the debt within 21 days. If they fail to pay the debt, they have committed an act of bankruptcy.

If you fail to deal with a bankruptcy notice in the appropriate way the creditor can apply to court for a Creditors’ Petition to be issued. Once a Creditors’ Petition has been filed in court it will allocate a hearing date. If the debt remains unpaid at the time of the hearing the court will issue a sequestration order and you will become bankrupt.

If you have been served with a bankruptcy notice, you may be able to stop a creditor from forcing you into bankruptcy by proposing a Debt Agreement or Personal Insolvency Agreement. To find out more about bankruptcy notices, contact Insolvency Services today on 1800 003 883. We offer free advice 7 days a week.

Am I eligible for a Debt Agreement?

Not every individual is eligible to apply for a Debt Agreement. To qualify for a Debt Agreement, a debtor must:

  • Have unsecured debts of less than $118,063.40
  • Earn an income of less than $88,547.55 p.a. (after tax) or $119,138 p.a. (before tax)
  • Have available equity in assets of less than $236,126.80.

If you exceed any of these amounts you would need to consider another type of arrangement, which is called a Personal Insolvency Agreement. For more information on Debt Agreements and how ISA can help you to propose one, contact us today on 1800 003 883.

What are the advantages and disadvantages of a Debt Agreement?

A Debt Agreement comes with both positive and negative consequences. A mark will be placed on your credit file during the Debt Agreement process and you won’t be able to get more credit until after it is finalised. You will however, become free of unsecured debt within a relatively short period of time and will no longer have creditors chasing you for payment.

Here at ISA, we are fully licenced and qualified to help you with any insolvency solution. So if you are struggling with financial hardship, contact ISA on our 24/7 toll-free hotline on 1800 003 883.

What is a Debt Agreement?

A Debt Agreement is a legal alternative to bankruptcy that involves an arrangement between a debtor and their unsecured creditors. It allows the debtor to pay back an agreed amount of their outstanding debts over a period of time.

A Debt Agreement is set up and administered by a Registered Debt Agreement Administrator (RDAA). When you contact a RDAA about a Debt Agreement, they will investigate your financial situation and household budget to determine what you can afford and how much this will give each of your creditors. When the repayment plan (which usually lasts for 3-5 years) is created, it is put toward the creditors and voted upon by them. Once accepted, the RDAA is responsible for collecting the repayments and distributing them to the creditors, and handling all paperwork and creditor enquiries.

What is Bankruptcy?

Bankruptcy is a process designed to provide a fair and equitable outcome for all involved if an individual is unable to pay their debts. It gives the debtor instant financial relief and ensures that if there are any funds that can be put towards the debts, they are realised effectively and distributed evenly.

Bankruptcy also presents a number of disadvantages to an individual, so it is important that one is fully aware of all implications before making any final decisions. This includes placing a record on your credit file, impairing your ability to source finance in the future, restrictions on overseas travel and a permanent listing on the National Personal Insolvency Index. Some careers may be affected by bankruptcy, and if you have any substantial assets such as a home, you may need to surrender them to your bankruptcy Trustee to repay your outstanding debts.

Are there any alternatives to avoid bankruptcy?

Bankruptcy should always be considered as a last resort and at Insolvency Services Australia, we strongly recommend that you explore all other options before coming to the decision to file for personal bankruptcy.

Legal alternatives to avoid bankruptcy include:

– Debt Agreement

– Personal Insolvency Agreement

Adopting smarter financial management and spending habits can also avoid bankruptcy and insolvency altogether.

Receiving the right information and advice on the options available when you are experiencing financial difficulty is essential to making an informed decision. Whether it is bankruptcy that is best for you, a Debt Agreement or Personal Insolvency Agreement, or even some simple budgeting advice – you need to feel comfortable that you have made the right decision for you and your household.

For more information or for free, no-obligation insolvency advice, contact ISA’s 24/7 hotline at 1800 003 883.

What is a Registered Bankruptcy Trustee?

A Registered Bankruptcy Trustee is a properly qualified personal insolvency practitioner who is registered with the Australian Financial Security Authority (AFSA) to administer bankrupt estates and handle your financial affairs. In order to be eligible to become a Trustee, one must hold a university degree in accountancy, be a member of the Institute of Chartered Accountants (or CPA) Australia, and preferably be a member of the Australian Restructuring Insolvency & Turnaround Association (ARITA).

Registered Trustees can administer all administrations provided for by the Bankruptcy Act of 1966, which includes bankruptcy, Personal Insolvency Agreements and Debt Agreements. Bankruptcy Trustees have statutory duties as outlined in the Bankruptcy Act. They are required to give impartial, honest bankruptcy advice in their dealings and to make decisions based on equity and fairness between creditors and debtors. All Registered Trustees are monitored by AFSA and subject to annual inspections, so the highest levels of standards are guaranteed to be met.

With a Registered Trustee on site at Insolvency Services Australia, you can rest assured that a professional, reliable and qualified bankruptcy advisor is personally dealing with your bankruptcy case. Our experienced bankruptcy team are fully qualified to provide you with the best possible service.

Choose Insolvency Services Australia for professional, honest and dedicated bankruptcy services. You can contact us on our 24/7 hotline at 1800 003 883 for free and impartial bankruptcy advice from expertly trained bankruptcy advisors.

What are the consequences of Trading whilst insolvent?

The Corporations Act imposes a clear duty of care on directors not to ‘prevent a company from trading if it is insolvent’ as the consequences can be disastrous if the company later fails.

A company director can be found guilty of insolvent trading if it can be proven that:

  1. The company incurred a debt whilst it was insolvent;
  2. The director was aware, or should have been aware, that the company was insolvent at the time; and
  3. The director failed to prevent the company from incurring the debt.

If the court finds a company director guilty of incurring debt whilst insolvent, they can become subject to penalties including:

  1. Civil penalties up to $200,000;
  2. Compensation proceedings – the company director could become personally liable, by order of the court, for a compensation payment to the value of debts incurred whilst the company was insolvent;
  3. Criminal charges – the company director could be referred to the Director of Public Prosecutions and become subject to a criminal prosecution.

If you are faced with these risks or possible risks, you should seek independent advice from a suitably qualified insolvency accountant like those at ISA. To find out how we can help you, contact us today on our 24/7 hotline on 1800 003 883.

What is Voluntary Administration?

Voluntary administration is an option for a company that is insolvent or likely to become insolvent, and would like to restructure or settle its debts while continuing to trade. Voluntary administration also allows the director of a company to put forth a proposal to its creditors to negotiate the debt and potentially settle it for less than the original amount.

During a voluntary administration, a licensed insolvency practitioner acts as the appointed administrator and helps manage the company while a plan for its future is created. This period is usually around 30 days and the company’s creditors will have the option of accepting the director’s proposal to settle debts, voting the company into a deed of company arrangement or if the proposal isn’t accepted then the company would usually be voted into liquidation. The third option (which isn’t usually acted upon) is to vote the control of the company back to the company directors.

A successful voluntary administration will result in the company being able to avoid having its assets sold off or having the company liquidated altogether.

ISA can help you with information about all aspects of voluntary administration, 24 hours a day and 7 days a week, on 1800 003 883.

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