What do you do if you wind-up here?

If you are involved in the construction industry in the ACT, you will have heard about the recent collapse of one of Canberra’s “big players” in the construction game.

The liquidation of this company is likely to have a widespread impact on a variety of companies and the construction industry generally. The preliminary report released by the liquidators, tasked with managing the liquidation process indicates that the company owes over 250 creditors in excess of $20 million dollars. It appears that a majority of creditors will remain unpaid.

The collapse of companies in the industry seems to occur all too often and begs the question of how these situations can be avoided.

What can you do if you think your company can’t pay its debts?

What does it mean to be “insolvent”?

Section 95A of the Corporations Act 2001 (Cth) (the Act) defines a person (or company) as solvent if they are able to pay all their debts when they become due and payable.

If your company is not able to pay its debts when they are due and payable, it is insolvent.

What are my obligations as a director in relation to solvency?

Section 588G of the Act imposes a positive duty on directors of companies to prevent the company from incurring debts in circumstances where the director suspects that the company may be insolvent.

There are a number of elements to the duty, including:

The duty only applies to an individual who was a director at the time the company incurred the relevant debt (s 588G(1)(a));
The company must have been insolvent at the relevant time, or became insolvent as a result of incurring that debt (or debts including the relevant debt) (s 588G(1)(b);
At the time the debt was incurred, there were reasonable grounds for suspecting the company was insolvent, or would become insolvent (s 588G(1)(c)); and
The director was aware (or should have been aware) that the company was insolvent, or would become insolvent (s 588G(2)).

If a director, or a person who takes part in the management of the company, fails to comply with the duty they may be held personally liable under section 592 of the Act.

Help! My company can’t pay its debts, what do I do?

If you suspect that your company might be insolvent, you should take action and seek advice from your lawyer or financial advisor immediately.

There are a number of financial services available to provide you with advice in relation to the solvency of your company and whether your company should go into liquidation, some of which may be no cost to you.

My company is going into liquidation, what do I need to consider?

There are a number of issues you need to consider if your company is going into liquidation, including (but not limited to) the following:

The assets and liabilities of the company;
The effect of liquidation on any employees of the company;
Whether you have provided personal guarantees as a director of the company; and
Whether your personal assets may be affected by the company’s liquidation.

The first thing you should do if you suspect your company is insolvent is to obtain legal and financial advice.

At Aulich, we have an experienced team of lawyers and a network of experienced financial advisors who are available to assist you and your company.

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What do you do if you wind-up here?