Business owners often deal with the stress of business failure. Genuine insolvency experts say common myths about insolvency create an environment of increased stress and pressure.
According to the experts who deal with failing businesses – although the practice of insolvency involves the interpretation and application of the law and has to do with balance sheets, ledgers and accounts – it is real people who pay the price and feel the pain.
Some unqualified consultants in the field perpetuate some insolvency “facts” that are actually myths. So what are they?
Myth 1: The ATO gets priority for tax debts
This is one that many consultants say they still hear quite often, despite the ATO’s priority for tax debt payment ceasing in 1993. Since then, all debts due to the ATO rank equally with other unsecured creditors. The only claim for which the ATO has a priority is in respect of unpaid superannuation guarantee charges.
Myth 2: Insolvency practitioners always get paid first
No, they don’t always get paid first, or get full payment for the work that they do. In court liquidations and bankruptcies, petitioning creditors’ costs rank ahead of most other claims, including an insolvency practitioner’s remuneration. The extent of secured creditors in an administration (how many creditors are “secured” and how many are not, which can vary greatly) will also have an impact on the amount left to pay their costs.
Often there are no assets available to be realised and no other recovery actions capable of being pursued. In those cases insolvency practitioners still have many statutory obligations that they must attend to, even though there may be no funds available to meet any remuneration and disbursement needs.
Myth 3: If your company goes into liquidation, you will go bankrupt too
Some company directors think that the liquidation of their company means that they are also made bankrupt. The personal financial affairs of the director are separate and distinct from those of the company of which they have been a director, and while bankruptcy may be inevitable in some cases, is it not automatic and will depend upon the director’s own financial position and the extent to which they may have guaranteed any liabilities of their company. There are also some obligations, such as meeting the Superannuation Guarantee for employees, for which a director can be held personally liable.
Myth 4: If you go bankrupt, you will lose everything
Despite what some may think when they first seek advice from insolvency practitioners regarding bankruptcy, they will not lose everything they own as there is certain property a bankrupt is entitled to retain. This is known as non-divisible property.
In addition to being able to retain normal household furniture, clothing and so forth, a bankrupt is entitled to retain tools of trade and motor vehicles up to a certain value. So, you may not be able to keep your fancy European sports car.
Myth 5: Administrators and liquidators work for the directors
Although an insolvency practitioner may be appointed by the directors of a company (as may occur in a voluntary administration), or the company’s shareholders (such as a voluntary liquidation), the appointed practitioner is bound to act in accordance with the Corporations Act and must act in the interests of all creditors.
Experts point out that this is different to a receivership, where the appointed receiver is generally working for their appointer, which is typically a bank or another financier.
The Insolve panel of qualified practitioners is driven to provide you with the right advice, at the right time – regardless of your circumstances. Let us help you Tame the Beast, and help you take control of the reins once again.