Insolvency

INSOLVENCY

Our Gold Coast insolvency lawyers have the ability to provide quality practical advice to private business people and corporate clients. To those that enquire, we provide our insolvency advice in corporate restructuring and strategic business development to prevent insolvency and, where it is unavoidable, manage company insolvency (including corporate insolvency) and company liquidation by assisting you to get your debt agreements, insolvency agreements or scheme approved in accordance with the insolvency standards legislation as it stands in 2017.

PREVENTION IS BETTER THAN CURE

Our Gold Coast team assists businesses to establish the proper risk management strategies and protocols to avert disaster, or in the event that the unthinkable does happen, blaze a trail back to stability and financial profitability. While there are no guarantees in the world of business, Ramsden Lawyers brings predictability to a market of natural volatility via our restructuring and bankruptcy expertise.

COMBINING TURNAROUND MANAGEMENT AND EXPERTISE IN LIQUIDATIONS

In addition to assisting our clients to avoid insolvency, we also excel in dealing with the harsh realisation that a company has insufficient assets to meet its liabilities. Where insolvency cannot be avoided or a viable work out strategy is not available, the directors and shareholders of a company may have no other option but to appoint an external official to liquidate the entity’s assets in order to repay debts.

Upon appointment, the liquidator assumes full control of the company’s affairs. Where the funds are sufficient to meet the needs of creditors, the surplus funds are distributed according to the constitution. However, if the company has insufficient funds to continue to trade, they can elect to place the entity into liquidation. Upon completion of liquidation, the company is deregistered. Our team of solicitors may assist you to ensure the most favourable outcome is achieved.

WORKING WITH DIRECTORS

We work alongside directors to decide how to maximise the return to creditors while avoiding their personal liability in relation to insolvencies as dictated by the Corporations Act 2001 (Cth). Recent amendments made to taxation legislation have strengthened director’s personal liability through the Director Penalty Notice and Liability Regime (‘DPLNR’). The DPLNR ensures that directors cannot discharge their director penalties via liquidations if PAYG and superannuation remains unpaid or unreported for three months after the due date. We can also assist directors in retaining liability limited via their company structure, especially where they are accused of insolvent trading, or found to have done so by liquidators.

RECEIVERSHIP

A secured creditor of a company may be registered to property securities under the Personal Property Securities Act 2009 (Cth) (‘PPSA’). In certain circumstances they may appoint a receiver to take control of assets for the purposes of liquidating them to repay outstanding debt owed to a creditor secured under the PPSA. Note that whether an asset is registered pursuant to the PPSA can be discovered by searching the Personal Property Securities Register (‘PPSR’) online.

A receiver can also be appointed by the court in a variety of circumstances, in which case the receiver must act in accordance with the court order. Our Gold Coast insolvency lawyers can assist you when a receiver has been appointed in order to ensure that the most favourable outcome is achieved. It is the role of a receiver to collect and sell enough of the charged assets to repay the debt owed to secured parties, pay out required monies and report to ASIC regarding any possible offences or particular irregularities they identify.

After meeting with you to discuss your particular insolvency situation, we provide a suite of turnaround management solutions that may assist in insolvencies, including: (a) Deed of Company Arrangement; (b) Schemes of Arrangement; (c) Voluntary Administration; and (d) Receiverships.

Our expertise also extends to liquidations, receiverships and negotiations with debtors.

RAMSDEN LAWYERS: A QUEENSLAND LAW FIRM

We are a Gold Coast and Qld law firm with the capacity to extend our services to our Brisbane clients. We have experience with and knowledge of litigation through our Litigation Partner and Queensland Accredited Specialist Ben Twomey.

As of 2017, our solicitors have acted for and dealt professionally with solicitors and firms, whether a law firm, or firms specialising in diverse fields from accounting to finance all across Queensland (‘Qld’) and Brisbane. We have also acted in NSW, WA and Victoria (particularly Sydney, Perth and Melbourne). Our Qld Lawyers separate themselves by specialising in insolvency law litigation, including personal insolvency and are respected insolvency practitioners with a full range of expertise in handling insolvency cases.

NEGOTIATIONS WITH THE ATO

Where our clients enquire, Ramsden Lawyers’ restructuring and turnaround management services can preserve and add value to businesses and achieve or enhance profitability. Our corporate insolvency lawyers advise clients on such procedures, and have the capacity to negotiate with or challenge the Australian Taxation Office (‘ATO’). The ATO is often the major creditor involved for a number of insolvency situations resulting from inability to pay the full amount of taxes required by the regulator. The practical implications are that assessments may be brought examining whether an entity should be penalised, issuing director penalty notices, issuing garnishee notices to the company’s bank or debtors or commencing action to wind up the company by issuing a statutory demand followed by a winding up application.

Ramsden Lawyers has a proven track record with a strong ability to enquire or otherwise interact with liquidators and the ATO by creating a proactive dialogue to settle tax debts and resolve overdue tax debt situations.

WINDING UP OF COMPANY

Our Gold Coast insolvency lawyers are adept at providing strategic advice on the winding up process for a struggling company.  In addition to establishing, negotiating and securing viable company work out arrangements, Ramsden Lawyers are experts in defending against statutory demands for amounts allegedly outstanding.  Ramsden Lawyers brings winding up expertise to our distinguished Gold Coast clients.

SPECIALISTS IN COMPANY WORK OUTS

While there are many formal mechanisms for dealing with potential insolvency and liquidation crises within the company context.  However, Ramsden Lawyers have also become experienced in avoiding such mechanisms altogether.  In the same way that taking a matter to trial is in some instances less preferable than achieving a commercially sensible settlement offer, in some cases a work out arrangement is preferable to formal insolvency mechanisms (such as a Deed of Company Arrangement (‘DOCA’) or Scheme of Arrangement). 

A corporate workout refers to a financial turnaround strategy outside of the realm of ordinary bankruptcy and / or insolvency law, with a view to remedying looming foreclosure or formal insolvency procedures.  Key to the viability of the company workout is the ability to illustrate to creditors and stakeholders that to enter into the work out arrangement will achieve for them a superior outcome to circumstances where they appoint a third party to handle proceedings (whether that be an administrator, receiver or court).     

Ramsden Lawyers are experts in advocating your position to the other side while also advocating that it is in the best interests of all parties to come to a commercially sensible resolution that avoids formal (and costly) mechanisms.

DEFENDING AGAINST STATUTORY DEMANDS

In addition to negotiating with creditors to achieve a work out resolution, we are also experts in handling statutory demands issued to you or your company (as the case may be).  A statutory demand can be issued where a creditor has an outstanding debt they are seeking to recover.  It is  a formal document that puts you or your company on notice that a twenty-one (21) day period has activated in which to rectify the outstanding amount. 

Failing to achieve a resolution within the designated timeframe has the effect of the company being presumed insolvent.  At that time, a creditor can demand the company be wound up and distributions be made to creditors in its wake.

Ramsden Lawyers are specialists in insolvency practice and regularly assist small business and corporate groups to address statutory demands.  If you are issued with a statutory demand, you must pay the debt within the prescribed period, negotiate and enter into an alternative arrangement with the aggrieved creditor or make an application to set aside the statutory demand.

SETTING ASIDE A STATUTORY DEMAND

Division 3 of Part 5.4 of the Corporations Act 2001 (Cth) provides four (4) grounds for defending against a statutory demand by way of court application under section 459G of the Act.   

The most frequently exercised defence to a statutory demand is to argue that there is a genuine dispute about the amount that is owing pursuant to section 459H of the Act.  Alternatively, section 459H allows a statutory demand to be set aside on the grounds that the debtor has an ‘offsetting’ claim (i.e. where the creditor owes the debtor an amount greater than the amount owed per the statutory demand).

Establishing that a genuine dispute exists is a low threshold, meaning that creditors should not issue a statutory demand unless they are confident that both parties accept that the amount remains outstanding.  In the event a creditor issues you with a statutory demand that they know to be genuinely disputed, our expert Gold Coast insolvency lawyers can assist you to seek indemnity costs against them. 

Failing the ability to exercise one of the defences under section 459H, it is possible to argue that there is a defect in the statutory demand itself which nullifies the creditor’s claim under section 459J.  A ‘defect’ occurs when the statutory demand lacks a necessary or essential element for it to be considered incomplete.

SETTING ASIDE A STATUTORY DEMAND

If the statutory demand is one that is likely to cause confusion, mislead your or the company or fail to disclose the requirements stipulated by the Act, a ‘substantial injustice’ will have occurred allowing you to set aside the statutory demand pursuant to section 459J(1).   

Key examples of defects that allow a statutory demand to be set aside include inconsistencies in the amount allegedly owed or where the description attaching to the debt is misleading or otherwise ambiguous in nature.

Additional reasons that a statutory demand may be set aside include failing to provide a supporting affidavit with the statutory demand, having an affidavit that does not substantiate the debt or the amount of the debt and where the affidavit and statutory demand have not been signed simultaneously.

INEFFECTIVE SERVICE

Pursuant to section 459G of the Act, a company can raise the argument that they were incorrectly served before the court as part of any winding up application that flows from a statutory demand.  Importantly, ineffective service cannot be argued before this point in time. 

The key methods of arguing ineffective service are that a proper notice did not accompany the demand, or alternatively that the demand does not provide for an address within the same State or Territory as the debtor for the outstanding amount to be satisfied. 

While arguing that a defect voids a statutory demand does not remove the problem entirely (i.e. the creditor is likely to follow up with another statutory demand), it does provide a valuable tool to create some ‘breathing room’ to negotiate a resolution until the court addresses the concern.

VOLUNTARY ADMINISTRATION

Voluntary Administration is an alternative to bankruptcy that company directors may find appropriate. It involves the appointment of an external entity (the administrator) to take control of the affairs of the company for a period of usually 4 – 6 weeks in order to allow the directors of the company to propose a resolution of the company’s financial difficulties. It can be advantageous because it allows immediate action to be taken, sets a fixed time frame for dealing with issues, allows a company and its creditors to consider merits of a compromise which may maximise the return to creditors.

Where a company acts promptly, it enables company directors to avoid being held to account in their personal capacity. Being held to account as an individual can potentially result in bankruptcy, or bankruptcy proceedings pursuant to the Bankruptcy Act 1966 (Cth)). Note that bankruptcy brings with it a significant reputational disadvantage, let alone the bankruptcy debt itself.

DEED OF COMPANY ARRANGEMENT (‘DOCA’)

DOCA is a formal agreement entered into between a company and its creditors in order to provide a fast, flexible and inexpensive form of administering the company and to maximise the chances of the company continuing. Creditors are likely to receive a more favourable dividend from companies than from liquidations. A DOCA is a binding agreement between a company and its creditors designed to achieve solvency in a situation of otherwise distressed financial status.

In some cases, a DOCA may involve the creation of creditor’s trusts to accelerate the exit from external control. After transferring the claims of creditors into trusts, the arrangement can be terminated. However, a DOCA that utilises trusts brings with it additional risks and obligations that require specialised legal assistance.

SCHEMES OF ARRANGEMENT

A Scheme of Arrangement is a court-approved agreement entered into between an insolvent and its creditors or members. It may also be used to avoid insolvency. Contrastingly, a scheme takes into account rights against third parties such as guarantors. While rarer in practice, they provide the capacity for dealing with increased complexity through added flexibility and are free to be utilised by companies regardless of their solvency status. The process is governed by the Court, who will at a first hearing order meetings to take place between affected creditors who must approve the proposed scheme, at which point the Court will approve the scheme in order for it to be lodged with the Australian Securities and Investments Commission (‘ASIC’). Note that a Court will not approve a scheme unless it is satisfied that it has not been proposed to avoid compliance with takeover requirements (as per Regulatory Guide 60).

MEMBERS’ VOLUNTARY LIQUIDATIONS

A Members’ Voluntary Liquidation provides a cost effective means of resolving a company’s affairs and does not necessarily require that the assets be realised. instead, the company’s resources can be distributed so that all liabilities of the company are paid in full. Simultaneously, it allows for a tax effective distribution of any remaining resources to shareholders. While a Members’ Voluntary Liquidation is not available for a company that is already insolvent (in which case it would fall to a creditor to initiate a voluntary wind up), it allows companies to transfer resources to third parties and deregister the wound up company where it no longer has any utility. An example of a Members’ Voluntary Liquidation in practice would be a corporate entity restructuring so that a particular subsidiary is no longer required and is then dispensed with via a Member’s Voluntary Liquidation.

A Members’ Voluntary Liquidation requires that shareholder pass a special resolution (i.e. a 75% majority of attending members at a properly called meeting). Note, however, that this method of restructuring is predicated on the directors of the relevant company providing a declaration stating that the company remains solvent based on the conclusions of the majority of directors, all of whom will have had to examined the company’s affairs and concluded that the company is capable of repaying all debts in totality within one (1) year. Assuming reasonable grounds for the declaration can be evidenced, the declaration is then lodged with the Australian Securities and Investments Commission and liquidators are then appointed. Throughout the process, the liquidators are obligated to take action if they determine that the company is insolvent.

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