It’s a stressful time if you’re a director of a company struggling to pay its bills. You may have even found yourself in this tough situation through no fault of your own — a major customer hasn’t paid you for your work and that’s meant your company can’t pay its own bills.
The law is there to help creditors to get their money back. So, even if the insolvency isn’t your fault, that often won’t be taken into consideration or count in your favour. What’s more, directors who are found to have been running companies that trade while insolvent face some serious potential consequences.
Maybe you’ve already tried to sort things out yourself in good faith. With employees and family relying on you, it can seem like a good idea to try to keep on trading to get things back on track.
But what can you do if your situation doesn’t improve and you’re then served with a statutory demand with 21 days to comply?
A creditor will send you a statutory demand if it thinks your company isn’t going to be able to pay its bills. For example, the ATO will often send statutory demands to companies that are late in paying their taxes.
Don’t ignore a statutory demand. If you don’t comply or come to an arrangement within 21 days, your creditor can make an application to wind up your company.
And if their application is successful, your company will be taken out of your hands. Without control of your company, your options for getting back on track or minimising personal liability are reduced.
That’s why — whether you’ve just received a statutory demand, or you’ve failed to comply with one — it’s crucial to get expert legal advice now. By getting legal advice from a lawyer who specialises in insolvency, you’ll have best chance of keeping the most options open.
Trading while insolvent occurs when a company keeps trading and incurring expenses after the point its directors knew (or should have known) the company couldn’t pay its bills.
The risks of insolvent trading are not limited to claims being made by a liquidator. A creditor can also take direct action against a director of a company in relation to insolvent trading in certain circumstances.
Insolvent trading opens up tough potential consequences for directors including:
You can protect yourself from these severe consequences for directors of insolvent companies if you get the right legal advice early enough. Choose a lawyer who specialises in insolvency because they will have the right experience to defend a claim against you.
Another scenario your company might face is if one of your customers becomes insolvent and a liquidator is appointed.
If a liquidator has been appointed to one of your customers, you may receive an “unfair preference” claim asking you to return money your customer has paid you.
You’ve done the work and been paid by your customer. So, why is a liquidator now asking you to give this hard-earned money back?
When a company becomes insolvent, its assets can be liquidated. All the company’s assets are sold and turned into cash to repay creditors. But because the company has gone through a difficult time, there isn’t usually enough cash from the asset sales to fully repay everyone that’s owed.
If you were paid after the company became insolvent, a liquidator could legally get the money back from you. They’re not claiming that you weren’t owed the money, the claim is that you were “unfairly” paid before other creditors.
There are defences to a claim of unfair preference. But it’s best to get legal advice that’s specific to your situation before the liquidator is successful in getting money back from you. If you have already repaid the money, it will go into a shared pool and you’re likely to get back less than you’ve repaid into that shared pool.
Our team of lawyers have experience working on complex disputes involving insolvent companies, liquidations and other forms of commercial litigation.
So, whether it’s advice on how to deal with difficult issues like unfair preference claims, or if you’ve been served with a creditor’s statutory demand — we’re insolvency specialists who can help you to put your company in the best possible position.
Give us a call to talk about your situation on 1300 286 578