13/09/2022
The joint publication from AFSA, ASIC and ARITA also offers practical guidance to company directors facing financial distress, to seek qualified professional advice and act on that advice.
Consult a qualified legal practitioner
Business failure can result in legally complicated outcomes, including asset recovery actions and penalties against the individual at fault, if they fail to comply with their legal obligations. In addition, declaring bankruptcy can have serious consequences.
Hence, it is advisable for an individual who may be facing financial difficulties in their business to consult a qualified legal practitioner as soon as possible. Other professionals to consult may include a registered trustee or liquidator. Many trustees are also liquidators; however, by law they cannot act in both capacities at the same time for an individual and their company. Once appointed, a trustee or liquidator acts for the benefit of an individual or company’s creditors and not for the benefit of an individual personally.
Be wary of untrustworthy advisers
Certain advisers may target individuals or company directors whose businesses or individual circumstances may be facing financial distress and hence are vulnerable to taking action which could be illegal. Such actions can lead to serious consequences for individuals and company directors, including large fines or imprisonment. It is important for individuals to know what they are paying for, and that the advice received does not give rise to a breach of law or duties. The warning signs for an untrustworthy adviser, include:
• contacting an individual unexpectedly,
• remaining reluctant to provide their advice in writing; a written record of advice is always recommended,
• referring to themselves as a “friendly” trustee or liquidator,
• suggesting the transfer of assets which are owned by an individual, or their company, to another party or company without that party or company paying full value for those assets; such action could damage the individual’s claims or those of the company’s creditors, and
• advising an individual to withhold, or delay, providing their business records to their trustee or providing the company’s books and records to their liquidator; this is an offence.