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Controlled Insolvency Exits


Helping Business Owner's in Financial Distress Navigate the Complex Insolvency Space

When a business is facing financial distress, navigating the complexities of insolvency can be overwhelming for directors. In such situations, exit strategies facilitated by insolvency practitioners can provide a structured and legally compliant path forward.

A Director’s Advocate plays a critical role in guiding business owners through this challenging process, ensuring that their interests are safeguarded, and the outcomes are as favourable as possible.


Have you received a ​Director's Penalty Notice from the ATO?

Director Penalty Notices ("DPN") means the ATO has made the Director personally liable for the debts of the Company.  If these notices are issued to a director, then we will need to move quickly to avoid further personal liability for tax debts. More info.

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What Is an Insolvency Practitioner-Facilitated Exit Strategy?Voluntary AdministrationCreditor's Voluntary Liquidation (CVL)

What Is an Insolvency Practitioner-Facilitated Exit Strategy?

An insolvency practitioner-facilitated exit strategy involves working with a licensed insolvency practitioner to manage the closure, restructuring, or sale of a business in financial distress. The most common forms of strategies include:

  1. Creditors’ Voluntary Liquidation (CVL): Winding up an insolvent business to settle debts in an orderly manner.
  2. Voluntary Administration: Appointing an administrator to explore restructuring options or achieve the best return for creditors.

Practitioner's typically act for the creditors, balancing their duties carefully to avoid bias, so this often limits their ability to offer directors protective advice.

Furthermore, they assume significant personal risk during their appointment, as they are accountable for decisions made throughout the insolvency process.

"As a consequence, the IPs role often conflicts with the best interests of the company’s directors."

And for this reason, Insolvency Practitioners are unable to provide holistic advice to the director’s. This means that, without a Director’s Advocate, the director may not get a full understanding of the insolvency process and their options. 

Voluntary Administration

A voluntary administration is a formal insolvency process in which an independent, qualified professional (a voluntary administrator) is appointed to take control of a financially distressed company. The primary goal of voluntary administration is to either restructure the company to return it to financial viability or achieve the best possible outcome for creditors if the company cannot be saved. It is designed to provide breathing space for the company while exploring its options.

Key Features of Voluntary Administration:
  1. Appointment of an Administrator:
    • A director, a secured creditor, or a liquidator can appoint an independent voluntary administrator.
    • The administrator assumes control of the company and its affairs.

  2. Temporary Protection:
    • A moratorium is placed on most legal actions and enforcement activities against the company, giving it temporary protection from creditors.
    • This allows the administrator to focus on finding the best solution without immediate pressure from debt collection or legal actions.

  3. Purpose:
    • To investigate the company's financial position and determine the best course of action.
    • Options include:
      • Rescuing the business through restructuring, a business sale or a Deed of Company Arrangement (DOCA).
      • Winding up the company if it is not viable, leading to liquidation.
      • Returning the company to the directors if it is solvent.

  4. Key Meetings:
    • First Meeting: Creditors decide whether to form a committee to assist and oversee the administrator's actions.
    • Second Meeting: Creditors vote on the company's future based on the administrator's report and recommendations. Options may include accepting a DOCA, liquidation, or returning the company to its directors.

  5. Outcomes:
    • Deed of Company Arrangement (DOCA): A binding agreement between the company and its creditors to restructure debts and keep the business operating.
    • Liquidation: If the company is not viable, it may be wound up, and assets are sold to pay creditors.
    • Return to Directors: If the company is found to be solvent, control is returned to the directors.

Benefits of Voluntary Administration:
  • Gives the company a chance to recover or achieve a better return for creditors than immediate liquidation.
  • Allows a pathway to restructure the business.
  • Protects directors from insolvent trading claims during the administration period.
  • Provides a structured process to deal with creditor claims.

Challenges:
  • It can be costly, depending on the complexity of the company's situation.
  • If no viable solution is found, liquidation often becomes the default outcome.

Creditor's Voluntary Liquidation (CVL)

A Creditors' Voluntary Liquidation (CVL) is a formal insolvency process initiated by the directors of a company that is insolvent and unable to pay its debts. The goal is to wind up the company in an orderly manner, sell its assets, and distribute the proceeds to creditors according to a statutory priority framework.

Key Features of a Creditors' Voluntary Liquidation:
  1. Initiated by Directors:
    • The directors of the company realize it cannot continue trading due to insolvency.
    • A meeting of the board resolves to place the company into liquidation and appoint a licensed insolvency practitioner to act as the liquidator.

  2. Voluntary Nature:
    • Unlike a compulsory liquidation, which is court-ordered, a CVL is initiated voluntarily by the company’s directors but must be approved by creditors.

  3. Role of the Liquidator:
    • Once appointed, the liquidator takes control of the company.
    • Their primary role is to sell the company's assets, investigate its financial affairs, and distribute proceeds to creditors.
    • They also ensure compliance with legal and statutory obligations during the liquidation process.

  4. Process:
    • Board Resolution: Directors meet and formally resolve to wind up the company.
    • Shareholder Approval: Shareholders pass a resolution to place the company into liquidation (typically requiring a 75% majority vote).
    • Meeting of Creditors: A meeting of creditors is held where they confirm the appointment of the liquidator or nominate an alternative.
    • Liquidation Begins: The liquidator investigates the company’s financial affairs, sells assets, and distributes funds to creditors.

  5. Investigations by the Liquidator:
    • The liquidator examines the conduct of directors leading up to insolvency to determine if there were any wrongful trading, fraudulent trading, or breaches of duty.
    • If misconduct is identified, the liquidator may take legal action against the directors to recover funds for creditors.

  6. Distribution to Creditors:
    • Funds from the sale of assets are distributed according to a statutory hierarchy:
      1. Secured creditors (those with security over assets, such as mortgages).
      2. Preferential creditors (e.g., employees owed wages or certain taxes).
      3. Unsecured creditors (e.g., suppliers and trade creditors).
      4. Shareholders, if any funds remain (rare in a CVL).
Benefits of a CVL:
  • Orderly Wind-Up: Provides a structured and controlled process for closing the business.
  • Directors' Initiative: Allows directors to take proactive action, potentially mitigating personal liability for wrongful trading.
  • Creditor Involvement: Creditors have a say in the process and liquidator's appointment.
  • Finality: Once the CVL is complete, the company is dissolved, and its legal existence ends.
Drawbacks:
  • Cost: The liquidation process can be expensive, and creditors may not receive full repayment of debts.
  • Reputational Impact: Being involved in a CVL can affect the directors' and the company's reputation.
  • Director Scrutiny: Directors' actions leading up to insolvency will be investigated by the liquidator.
When to Consider a CVL:

A Creditors' Voluntary Liquidation is appropriate when:

  • The company is unable to pay its debts as they fall due (cash-flow insolvent) or its liabilities exceed its assets (balance-sheet insolvent).
  • There is no viable option to rescue the business through restructuring or administration.

A CVL is a responsible way for directors to address insolvency, providing creditors with transparency and ensuring the company's closure is handled in compliance with legal requirements.


How a Director's Advocate Supports the Directors in a Controlled Exit

A Director’s Advocate serves as an advisor, protector, and strategic partner throughout the exit process, ensuring directors make informed decisions and avoid common pitfalls. Below are the key ways a Director’s Advocate provides support:

1

Assessing the Situation and Exploring Options

Objective Evaluation: Analyse the company’s financial position and viability to determine if an insolvency process is the right path.

Exploring Alternatives: Identify potential alternatives to formal insolvency, such as refinancing, restructuring, or operational changes, before committing to an exit strategy. See more here.

2

Choosing the Right Strategy

Tailored Recommendations: Along with the Insolvency Practitioner, help directors understand the available options and select the most appropriate insolvency practitioner-facilitated exit strategy for their situation.

Minimizing Risk: It's important to note that an Insolvency Practitioner is conflicted from providing advice in the best interests of the Director's. A Director's Advocate is not conflicted and can provide advice that prioritises the director's interests. See more here.

3

Providing Guidance Through the Process

Director Responsibilities: Ensure directors understand their legal obligations and duties during the insolvency process to avoid potential claims, such as wrongful or insolvent trading.

Communication Support: Assist with communicating the situation to employees, creditors, and other stakeholders, ensuring transparency and professionalism.

4

Liaising with Insolvency Practitioners

Advocacy: Act as a bridge between the directors and the insolvency practitioner, ensuring the directors’ interests and concerns are represented.

Oversight: Monitor the insolvency practitioner’s actions to ensure the process is conducted fairly, efficiently, and in line with legal requirements.

 

5

Managing Personal Risks for Directors

Protection from Liability: Advise directors on actions to mitigate/minimise risks of personal liability, including documenting decisions and ensuring compliance with insolvency laws.

Post-Insolvency Support: Provide guidance on managing the implications of the process, such as disqualification risks or rebuilding professional reputations.

 

6

Maximizing Value for Stakeholders

Asset Optimization: Work with the insolvency practitioner to ensure that business assets are sold or restructured to achieve maximum value.

Stakeholder Outcomes: Aim to balance the interests of creditors, employees, and shareholders to achieve the best possible resolution.

 

At Thryvv.io, we act for you.

Thryvv.io acts for you, the business owners and directors. With more than 15 years’ experience in both financial consultative roles and in corporate level leadership, our role is to identify the possible exit opportunities, develop a strategy and help you manage the process throughout, working for you to get the best possible outcome.  

When appointed, we work with you to do the following:

  1. Assess - Review the business' position and identify the issues that affect the Company and it’s directors personally

  2. Resolve - Work with the director’s to resolve the issues identified as much as possible. 

  3. Structure -  Structure, formulate and compile an exit plan.

  4. Manage - Manage the process in line with the plan, on your behalf, to allow you to focus on the day to day operations of the business. 


For engagements where an Insolvency Practitioner is required, we will select one that we believe will yield the best outcome for the Company and its directors in the circumstances.

We work closely with a large number of Practitioners, and as such get access to discounted costs. This often means that we can offer director centric services for the same or very similar costs as going directly to them. 


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