Option #4 Immediate insolvency appointment

Sometimes there is no option but to appoint an insolvency administrator – and often quickly.

This can apply when a creditor has issued statutory demands or the ATO has issued a Director Penalty Notice and there is not the capacity to pay the debt owing.

An insolvency administrator is subject to the operations of the law and responsible and accountable to creditors and the statutory bodies such as ASIC and the Court.

There is nothing stopping the directors and/or shareholders considering the appointment of an insolvency administrator if they suspect their company may be insolvent.

The required outcome:

The immediate cessation of further risk to the creditors and directors of the company.

What an immediate appointment requires:

  • Agreed consensus on adopting the orderly wind down by the directors and/or the shareholders. Shareholders can appoint a liquidator but directors, without the consent of the shareholders, can appoint a voluntary administrator.
  • Suspicion of insolvency which is justified from the facts. (There have been instances of directors attempting to avoid the impact of investigations by ASIC by appointing voluntary administrators).

What you do not want:

  • Typically, an immediate insolvency appointment may have many ‘unknowns’ and it is not practicable to identify them all.
  • What the appointed administrator will do, however, is consider the following:
  • Whether to either trade on the business to sell it as a full or partial ‘going concern’ or immediately wind it up.
  • This is a commercial judgement and will be based upon the administrators assessment of:
    • The prospects of achieving a sale of the business and/or assets ‘in one line’.
    • The likely benefit in terms of achieving higher values for the assets on hand.
    • The likely cost of trading on and orchestrating a sale.
    • The risks associated with trading on including:
      • Cash available to pay trading expenses as they are incurred
      • Personal liability for the administrator if the trade on and sale is not successful.
      • Warranty and indemnity risks if the administrator deals with or transacts with a third party (eg customer, employee, supplier) during the administrator’s appointment.
      • The rights of other parties who have a security interest over some or all of the assets.

If you would like to find out more about how we help business owners, give us a call for a confidential, no obligations free chat on 1300 783 309 or contact us.