Insolvency and Starting up New Company to Continue to Trade

[Katches]

Up

0

::

I am browsing all options to get ready for the possibility of the company my hubby is director of becoming insolvent. I understand that it the ideal is to try and trade out of it and I understand that voluntary admission of insolvency is better than a creditor or the ATO doing it for you. My question/idea is this:

We set up a family trust overseen by another shelf company about a year ago. All paperwork in order etc. Could my hubby start trading with that one along side current one with clients that are just interested in labour hire – no materials so we dont have to set up trade accounts? If current company is determined (trying to get professional advice on this – guy ringing Monday) to be running insolvent and we need to wind down then at least hubby could continue to trade to help repay debts and have income. How would having a trust account already set up work? Can we transfer some assets such as the two cars we own ourselves into the trust and how does that work? We have not opened an account on this company yet but the solicitor has given us a pack to take to the bank to open one up. Im just not sure how it will all work and dosnt the company have to operate with a trading name which I will have to register yes?

[YoungNomad]

Up

0

::

Hey … I’m sorry to hear about the looming troubles within your business.

I think I speak for everyone when I suggest seeking professional advice – the last thing you want is to take generalized advice from a member on the forum, and then run afoul of the ATO.

Your accountant or solicitor will be able to give you the most specific, correct advice.

I wish you all the best.

[James Millar]

Up

0

::

Hi Katches

The bad news is that the Corporations Act imposes liability on directors in some circumstances. Transfer assets (tangible and intangible) away from the company in question can also be a breach of the Corporations Act (and other law). The directors have a duty to act in the best interests of the company at all times so any attempt to run parallel operations needs to be very carefully reviewed to ensure it doesn’t disadvantage creditors.

You also have GST issues if disposing of vehicles across entities (assuming they are not grouped) – creating further liabilities in the primary entity. It’s worth noting that the ATO also have regulations allowing direct claims against directors for some unpaid taxes.

My advice – anytime a company is bordering on insolvency then get immediate specialised legal insolvency advice (and I don’t mean from your average suburban lawyer that handles wills, conveyancing and basic commercial law). There can be big dollars at stake so paying $500 per hour for a second tier firm to review the situation is money well spent.

Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900

[Author]

Posts