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Your choice of an insolvency practitioner could be vital

17 January 2019

If you have a legal or medical problem you will of course where possible, chose your lawyer or doctor carefully.  Should your business ever need insolvency advice, an administrator or liquidator or a Trustee in Bankruptcy, be sure to make a careful choice employing similar selection criteria also.

For appointing an insolvency practitioner with a demonstrative record of expertise, known ethical standards, an empathetic approach to your particular financial situation and an understanding of stakeholders’ interests in it, could be life changing.

First, some background

John Smithson (we’ll call our client that for the sake of this exercise) operated a typical mum-and-dad landscaping business by way of a number of local family companies, one of which had been placed in the hands of an Interstate liquidator.

Distressed and confused by the liquidator’s aggressive attitude and demand letters, making it increasingly difficult for him to deal constructively with his financial situation, Mr Smithson sought advice from Macks Advisory.

In particular Mr Smithson wanted to know this situation might be improved. 

We decided to do this by utilising assets from one of the family’s companies not in liquidation.

Accordingly he recommended to John Smithson that he put into liquidation a company  (we’ll call it ABC Property Holdings Pty Ltd) that had substantial equity in a developed property.

The company was duly liquidated and the property sold exceptionally well.  The Smithson’s main creditor, a bank, was paid in full, and other positives for the family included nullifying an array of threats from the interstate liquidator (we’ll call him Colin Cudgel).

The family’s dilemma

Mr Cudgel’s initial letter to Mr. Smithson -- five A4 pages of single-spaced type - curtly introduced himself as liquidator of a failed family company, before going on to:

  • lecture him (quoting various sections of the Corporations Act) on his responsibilities as a director, to specify what constitutes “insolvent trading”, to dictate what a director needed to do to prove his company hadn’t been trading at relevant times while insolvent, finally detailing penalties he (Smithson) would face if convicted of this crime.
  • state that Mr Smithson’s company failed to honour a “special arrangement” with the Australian Tax Office (ATO) for paying a debt of $133,698.30, also pointing out the company’s unpaid superannuation totalled $93.349.02.
  • assert that when tax payments had been made, they couldn’t be reconciled with any GST or PAYG withholding liabilities reported on the company’s BAS lodgments.
  • Finally, to inform Mr Smithson that an examination of the company’s books and records indicated he had knowingly traded while insolvent between 24 March 2016 and 3 October 2017, and accordingly a claim for $173,121.11, payable within 14 days of the letter’s date, was being made against him as a director of the company.

When there was no response to this letter Mr Cudgel dispatched two more in similar tone, one including instructions to Mr Smithson on defences available to him against an insolvent trading claim, the second declaring that if the claim wasn’t settled within seven days, legal proceedings would result.

Macks Advisory takes the helm

When Mr Smithson appointed Peter Macks and Ian Burford, liquidators of the previously mentioned company ABC Property Holdings Pty Ltd, they managed the sale of the company’s assets.  After settlement of all fees associated with this they were able to present Mr Smithson with a cheque that went a long way towards helping to stabilise his family’s finances

The bank that had been the main creditor of the Smithson company liquidated by Mr Cudgel was paid out in full, and the legal action he’d been threatened with was avoided. 

Macks Advisory acknowledges SMEs – including a multitude of so-called “mum and dad” companies – are the backbone of Australia’s economy, and believes directors in financial strife deserve the most experienced professional and empathic service from insolvency practitioners to help them stay in business.

Please note that the specific facts have ben altered so as to protect the identity of the parties involved.

Disclaimer: The information contained in this webpage is general information and does not constitute legal advice. Nothing in this webpage is or purports to be advice. If you do need advice, then you ought to seek and obtain appropriate personal professional advice based on your personal circumstance.

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