Companies undergoing financial disasters may find themselves in the most difficult times. But as a company director that faces liquidation, the matter is more challenging and complicated.
As an organization’s director, one may continue collecting the company debt. They consider entering liquidation because of personal failure. They worry about being liable for debts incurred by the establishment. In maximum cases, the director is usually responsible for the debts. In such a scenario, the director may lose control over their personal assets.
So, when the company enters liquidation, the director must investigate whether they are liable. They must determine whether they made any wrong decisions when they were the director. Here’s everything to know about the responsibility of a director after the company enters liquidation.
So, Is It Justifiable for the Director to Resign?
It’s tempting for directors to resign from the company. But in Australia, if the company goes into liquidation, a director cannot resign. Plus, it is also unjustifiable for a director to sign off from the company during a crucial financial situation.
Before the company entered liquidation, the director was the most powerful professional in an establishment. But they lose their decision-making abilities and power after a registered liquidator gets appointed. The liquidator will be responsible for the company’s matters, including its assets.
The Roles and Responsibilities of an Insolvency Practitioner when The Company is in Liquidation
Soon after the company enters liquidation, a liquidator gets appointed. And immediately, they gain control of the company assets and other affairs. The role of these professionals is to offer insolvency solutions during liquidation. They include the following:
– Protecting and collecting company assets
– Trade the company’s business
– Sells the company assets
– Undertaking legal claims or recoveries
– Investigate financial affairs and other organizational transactions
Will Liquidation Have Any Impact On A Director?
Sometimes, directors fear that they will become liable personally for debts. They also fear losing their house and other personal assets. That’s why many directors want to avoid liquidation or wish to resign during this process.
But if the director has performed the duties lawfully, there will not be a chance of personal liability or personal assets’ loss. The professional might be liable when they sign any personal guarantee to any creditor. These are personal guarantees that let creditors place direct claims on the guarantor & personal assets.
The director needs to understand their roles and responsibilities completely. If they do so and don’t agree to personal guarantees, they don’t have to worry about personal liabilities.
So, a director may think they won’t be able to hold this position again in the next company. But it is a misconception. Indeed, they need to place rules regarding the ability to be a director in another company. However, directors are still liable for debts in certain conditions:
– Whether they breached their duty
– by operating illegally
– or provided personal guarantees
In addition, directors should have relevant explanations for their financial moves. They must be able to answer what made the company experience liquidation. Once the licensed insolvency practitioner (liquidator) gets appointed, they will handle a few responsibilities.
So, if your company has entered liquidation, it is time to consult Insolvency Australia for insolvency problems and solutions. Regrow and restructure your company and overcome financial distress. A Registered Liquidator from Insolvency Australia will right be at your service to resolve different situations, including liquidation.
The professionals can resolve other financial situations such as receivership, restructuring, safe harbour, voluntary administration, and refinancing. Get initial consultation from professionals at this insolvency firm in Australia today.