The biggest mistake I’ve seen people make when they are looking for insolvency advice is to go to Untrustworthy Advisors.
Untrustworthy Advisors (“UAs”) will give you advice that could land honest business people in hot water – the court cases are starting to roll out and it is very unfair to those small business owners who thought they were doing the right thing by seeking out advice, only to find they went to someone who was prepared to give them bad and in some cases illegal or misleading guidance and advice. But, unfortunately as we all know – ignorance is no excuse – and the penalties are serious if you get it wrong!
See ATO media release: Strike on Tax Agents Facilitating Suspected Phoenix Activity & Tax Avoidance
The AFSA website also describes a recent Queensland court case where a bankrupt person was convicted after following advice from an UA to structure an illusionary second mortgage and subsequently making a false declaration to her bankruptcy trustee.
How do you avoid this and other common mistakes?
Always seek reliable advice from professionals who are registered with ASIC such as an Insolvency Practitioner, who will also hold a practising certificate from one of the 3 recognised Accounting professional bodies. All Insolve panellists are registered with ASIC so if you are reading this blog, you are already on the right track!
In the eyes of the law, business people who receive advice from UAs and participate in sharp practices as outlined in some of the links above are on notice that they could be fined and/or charged with criminal offences.
As if to reinforce the point and show how serious a problem this is, the Parliament is set to introduce even tougher laws in relation to phoenix activity, which will make it illegal for anyone to facilitate this type of behaviour. Large penalties and possible jail sentences for breaches are likely to be enacted in the legislation.
At this time it is worth remembering that unless your business is actually insolvent, then you have other options outside of External Administration – these could include some of the following:
- Safe harbour protection
- Capital refinancing
- Business restructuring
- Selling your business
- Selling parts of your business
- Debt negotiation
- Adjusting credit terms
- Protecting your business assets through mechanisms such as PPSR
- Pursuing parties that have given you poor advice
ASIC also produces information for directors including what to do if a company is in financial difficulty. It is also worth have a quick look at this information release:
ASIC.gov.au: regulatory resources – Insolvency: A guide for directors (INFO 42)
(INFO 42: © Australian Securities & Investments Commission. Reproduced with permission)
