Raids conducted over the last two months by the Australian Taxation Office (ATO), and the Australian Securities and Investments Commission (ASIC) show an increase in the number of banned liquidation agencies promising cheap liquidation and pre-insolvency services to the Australian business community.
The raids in question appeared to be targeting pre-insolvency companies in an effort to crack down on the number of unlicensed insolvency companies.
The Australian reports that these pre-insolvency companies could be accessing public databases to identify struggling small business. Once they have acquired sufficient background detail, they begin a cold calling campaign and offering liquidation services.
The services often come with the promise of cheap liquidation and in the cases currently being investigated, the costs have turned out to be anything but cheap for small business.
Registered Liquidator of the Supreme and the Federal Court of Australia, Steven Kugel, stated,
“It could be in our DNA to shop for the lowest price. In fact, it makes perfect sense to do so, but a company liquidation is not a product you can take home, own or control.” As soon as you place a company into liquidation or voluntary administration, the liquidator takes control, and you are answerable to them.”
The raids conducted by ASIC are a timely reminder to business that the liquidator works for the benefit of the creditors, not the directors. The Liquidator is there to review your business. And his role is to investigate you!
While you may pay $6,000 or less to liquidate a company, you need to understand that a liquidator cannot perform all the tasks required by ASIC and the law for that amount.
In one recent case, after a small business had taken up the offer of a cheap liquidation, a $25,000 debt became a $488,000 debt in PAYG arrears.
The true cost of performing all the compliance work, even in the most basic and simple company liquidation, is substantially higher than the current advertised prices of a cheap liquidation.
As a result, the liquidator who sells you a discounted liquidation will lose money unless he finds a way to bring more money into the company.
Liquidators are not in business to lose money. In fact, Liquidators like any other business, are very motivated to make each job as profitable as possible, and they achieve this by making recoveries.
As soon as you appoint a liquidator, he commences a forensic examination of you and your performance as a director as well as your use of company assets and funds.
And it doesn’t matter whether you choose to pay the liquidator or whether the court appoints one. The job is the same; it’s done for the benefit of the creditors.
As a result, company directors have often found their appointed liquidators will often take action against them as a result of what the liquidation investigation revealed.
“If you place your company into liquidation without understanding exactly how the process may affect you, you are asking for trouble.”
A voluntary administration or company liquidation you have not planned for is not only traumatic to small business; it could turn out to be the wrong decision entirely.
Even when the situation appears desperate, liquidation or voluntary administration is not the only option. It is only one in a range of options that are available.
Before Company directors make a decision on a liquidation based on price alone, they need to take a moment to understand the risks and to investigate the alternates that are available.
More raids are anticipated on unregistered or banned liquidators, and small business should remain sceptical of those offering cheap liquidations. In business, there is no such thing as a cheap.