What happens to a director when a company goes into liquidation?

• 

  aussiepom on 22/11/2016 - 22:52

  +4

  It will depend on the exact circumstances as to what can happen.

  But the liquidator can look at the conduct of the directors in the lead up to the insolvency. And take action if they see fit.

  And it's possible that the new company is an example of phoenixing which is illegal. See: http://asic.gov.au/for-business/your-business/small-business… for details.

  • 

    chu-oh on 22/11/2016 - 23:00

    Thanks for the info.

    If there's nothing to liquidate what happens to the creditors? I got a payment this year when my former employer went into liquidation (it's been a shit year!) through the FEG program - is there something similar for business debts?

    • 

      pais on 23/11/2016 - 01:01

      +3

      f there's nothing to liquidate what happens to the creditors?

      In general, you'd be SOOL. Creditors can't be paid back if there's no assets.

      You might be lucky if the liquidator finds history of preferential treatment of creditors (i.e. to his son's company).

• 

  AntMan76 on 22/11/2016 - 23:09

  +1

  Based on your description, his actions almost certainly appears to be phoenix activity, which is illegal as pointed out by aussiepom.

  The liquidator can request transactions going back 6 months, and any transfers or payments (at the expense of other creditors) can be recouped/claimed back as being preferential payments. Also if he was trading insolvent in this period then he can be struck off as a director and fined. But as you point out the new company has his son as director.

  If there are any unpaid PAYG liabilities from his time as director then he can be made personally liable for these amounts. As he is a builder I am unsure what PAYG there would be, particularly if he was simply using contractors and sub-contractors.

• 

  Almost Banned on 22/11/2016 - 23:30

  +1

  1. Directors are generally not personally liable for company debts. There are, however, some exceptions (generally things like PAYG Withholding)
  2. The liquidator can examine the director and pursue any uncommercial activity that occurred during the relation-back period. However, if there are basically no assets in the liquidation they would either have the be very confident of recovery or need some form of external funding to do much.
  3. There is nothing to stop him from doing the same thing again unless either someone finds a way to bankrupt him or he is issued with a banning order.
• 

  AntMan76 on 22/11/2016 - 23:32

  +1

  OP, there is information at this page https://www.ato.gov.au/General/the-fight-against-tax-crime/o…

  You can report their suspected phoenix activity at that page too.

• 

  ozb10 on 22/11/2016 - 23:40

  https://www.asic.gov.au/regulatory-resources/insolvency/inso…

  https://www.asic.gov.au/regulatory-resources/insolvency/inso…

  Not a lawyer, but I think with enough evidence, the director can be made personal liable and be prosecuted for criminal offence for insolvent trading.

  What is the name of the new company?

• 

  MrFrugalSpend on 22/11/2016 - 23:41

  +1

  I believe there are various powers to claw back assets and powers going back something like 6 years to claim back voidable / unfair "preferential" payments, and "Uncommercial transactions" (such as to related parties).

  However the administrator / liquidator / receiver needs to be willing to think there is value in pursuing it as it can be hard to prove, so if given the opportunity you may want to tell them or ASIC what you know about it so they look into it.

  Read this:
  http://www.dissolve.com.au/information-centre/director-perso…

  Personal liability for the shortfall - … The prime concern of a director should be that any assets that are sold, are sold at a fair value.

  If any assets are sold at undervalue, a director runs the risk of the company’s liquidator declaring it an uncommercial transaction and voiding it. An uncommercial transaction is defined as a transaction that it may be expected that a reasonable person in the company’s circumstances would not have entered into having regard to:

  the benefit or detriment to the company; the respective benefits to other parties; and, any other relevant matter.
  To be voidable, an uncommercial transaction must have occurred during the two years before the liquidation. However, if a related entity is a party to the transaction, the time period is four years and if the intention of the transaction is to “defeat creditors”, the time period is ten years.

  By voiding the transaction the liquidator can recover the asset and resell it for a fair value, or hold the directors personally liable for the difference between the actual sale value and what the liquidator deems to be a fair value.

  Read this:
  http://www.jonespartners.net.au/insolvency-business-recovery…

  Section 588G of the Corporations Act is framed in terms of who the directors were at the time that the company incurred a debt AND whether as a result of incurring such debt the company became insolvent or was already insolvent. As such, even if any individual has subsequently removed themselves as a director, if a liquidator forms the view that the company was insolvent at the time a debt was incurred during their tenure as a director then they are still on the hook.

  Under Section 206F, a Director who resigned less than 12 months ago, like a current director, can also be banned from managing corporations if they do things wrong:

  while the person was an officer; or within 12 months after the person ceased to be an officer of those corporations, each of the corporations was wound up and a liquidator lodged a report under subsection 533 (1) … about the corporation’s inability to pay its debts……

• 

  frondono on 23/11/2016 - 05:30

  +2

  I don't think this is their first rodeo.

• 

  airzone on 23/11/2016 - 07:13

  +1

  Yep, all standard procedure.

• 

  Baysew on 23/11/2016 - 08:59

  +2

  Was it Family First senator Bob Day?

  Family First senator Bob Day quits the Senate after building company goes bust