Liquidations can be a costly affair for directors of companies that are already failing. Voluntarily placing a company without assets into liquidation usually requires the company to have sufficient funds or assets which can be sold to cover at least some of a liquidator’s costs. If the company has no funds or assets, liquidators will require another party to advance funds to cover these costs.
This can create some hesitancy on the part of directors to wind up their companies as often they cannot afford the ‘costs’ of placing a company in liquidation.
Cost of liquidations
At Pearce & Heers, if a company has no assets, we will often require directors to make $5,000 available to us (or sometimes more) prior to placing a company in liquidation. These funds are to ensure that at least some of our costs are covered if we are appointed as liquidators.
2022 Federal Budget funding for assetless liquidations
The Federal Government has announced that it will allocate $20 million in the next two years for liquidations without assets. The Federal Budget Papers describe the allocation of funds as follows:
“To ensure that liquidations with insufficient assets can proceed, from 1 July 2023 the Government is also providing an additional $20 million in funding over two years to the Assetless Administration Fund, a grant administered by the Australian Securities and Investments Commission. Liquidators will be able to apply for a maximum grant of $5,000 per assetless liquidation, without needing to provide evidence of potential misconduct.”
Moving forward – will there be free liquidations?
The new rules will take effect on 1 July 2023. If the proposed funding can be applied to voluntary liquidations without assets, it is likely that this will lead to no, or very low-cost liquidations. This will remove one barrier for companies to be wound up voluntarily, whether it is part of a larger restructuring exercise or otherwise.
Contact us for assistance
For directors who have been holding out because of the cost of liquidation, this is good news. As sometimes liquidation is the best way forward to resolve issues plaguing the company.
However, 1 July 2023 is a long way off and the budget measures will probably need to be legislated or implemented by regulations. So, if you are thinking about placing your company in liquidation, please contact us at our Brisbane or Gold Coast offices for a free no obligation discussion. Our team of professionals will be able to provide you with options, including ways you can avoid liquidation.