Demystify the corporate liquidation process with insolvency expert Darren Vardy. Learn about different types of liquidation, what happens to company assets, creditor priorities, and what directors can expect throughout the process.

Key Topics Covered:

• Types of corporate liquidation (voluntary vs. compulsory)
• The role of the liquidator
• Asset realization and distribution process
• Creditor priorities and payment order
• Director responsibilities during liquidation
• Timeline and key milestones in the liquidation process

Key Takeaways: ✓ Voluntary liquidation allows more control over the process ✓ Liquidators have specific duties and powers under the law ✓ Asset distribution follows strict legal priorities ✓ Directors must cooperate fully with the liquidation process ✓ Early voluntary action often leads to better outcomes

Who Should Listen: Business owners, company directors, lawyers, accountants, and anyone wanting to understand financial distress warning signs.

About the Host:

Darren Vardy - Managing Director of Insolvency Options and Registered Liquidator with over 30 years of experience in business recovery and debt solutions. Darren has helped thousands of businesses and individuals navigate financial distress and find practical solutions to complex problems.

Connect With Us:

• Website: insolvencyoptions.com.au  • Phone: 1800 463 328 • LinkedIn: https://www.linkedin.com/in/darrenvardy/

Subscribe & Follow:

Don't miss future episodes! Subscribe to i.O. - Insolvency Options

Like this episode? Please leave a review and share with colleagues who might benefit from these insights.

Co-host: Anthony Perl

Produced by: Podcasts Done For You

Hashtags: #CorporateLiquidation #Insolvency #BusinessRecovery #Liquidator #AssetRealization #CreditorRights #CompanyDirectors

Speaker: 00:00:03

Introduction to Insolvency,

understanding the basics.

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Welcome to our first episode of IO

Insolvency Options with Darren Vadi,

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the managing Director of Insolvency

Options, and a registered liquidator.

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With over 30 years of experience

helping businesses and individuals

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navigate financial challenges.

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In today's episode, Darren shares

his journey into insolvency.

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Explains what insolvency actually means

and reveals the warning signs every

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business owner needs to recognize.

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We'll explore when to seek

help and the difference between

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corporate and personal insolvency.

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You'll understand the

fundamentals of insolvency.

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Know when to seek professional advice.

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Learn why acting early

gives you the most options.

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I'm your co-host, Anthony Pearl.

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Let's dive into unlocking

more about insolvency options.

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Darren, let's focus a little

bit on corporate insolvency.

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I think it's important.

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That we start off with just simple

terminology because I think a lot

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of people hear these words and

maybe don't fully understand it.

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They think they know what it means, but

they don't really know what it means.

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So just unpack the idea

of liquidation first.

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What does that actually mean?

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So liquidation is where a company

is essentially a wound up, A

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liquidator is appointed either.

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Voluntarily by its directors and

shareholders, or by the court.

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Now, the purpose of a liquidator is

to secure, protect, and realize a

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company's assets, then in accordance

with the priority set out in the

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Corporations Act, distribute whatever

surplus realizations are available

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back to the company's creditors.

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So on a liquidation, a business

will, if it hasn't already prior to a

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liquidator appointment, a business will

cease to trade upon the appointment

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or shortly thereafter the appointment.

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It is possible for a liquidator

to continue to trade the business

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for a short period of time for the

purposes of realizing the most out

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of a company's assets, but generally

that trading on period will generally

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only go for weeks, not months.

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Despite the fact that we seem to

see some of these retail outlets

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that have liquidation sales that

seem to last for years, right?

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That's a little bit of marketing

that goes on there I think.

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I think it's fair to say that the

liquidation sales that you refer to relate

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to liquidation of stock as in sale or

realization of stock sales as opposed

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to liquidation of company, correct.

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I do recall, and I hope this is a true

story 'cause I want it to be, there was

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someone that tried to register, at least

operate under the name closing down sale.

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And I think that got pulled, I think

it was the, so the story goes that they

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weren't allowed to continue to do that,

but that was the name of the shop and

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that was where it was going on for a

few years until people kind of went,

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hang on, this is not really right.

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You're not really closing down, are you?

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One would suggest there may

have been a little bit of

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misleading advertising there.

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It's uh, just a, just a tad.

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Just a tad, but I think in all

seriousness, I mean, what does, what are

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the implications of someone going into,

or a corporate going into liquidation?

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'cause that's what we're

focused on at the moment.

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Does it mean that for that person

that's, you know, whose business it is,

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is that's the end of the line for them?

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No, it doesn't.

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It's the end of the line for that

entity and it can be the end of

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the line for that business, but.

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It is possible for the business to be

sold by the liquidator to another party.

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That is one of the outcomes which can

achieve a greater return than simply a

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breakup of the assets and a realization,

say, via an auction basis on the assets.

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So quite often a sale of business

will provide for a better return

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in a liquidation scenario whilst

it's arable that goodwill.

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There may not be that much

goodwill attached to the business.

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Simply having the business in situ and

operating can provide a better return than

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ceasing the trade, sending all the assets

out to auction for realization basis.

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As for a director, a director

can be a director of another

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entity post liquidation.

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The only way a director is prohibited from

being a director is if they themselves

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become personally bankrupt or if as ASIC

deemed that they, they are not a fit and

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proper person to be a director and ban

them from being a director of a company.

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So how common is it for someone for

a corporate structure to go into

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liquidation, then find themselves bought

out by the people who were really running

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it before, just set up under a new entity?

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Look, it can be common.

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Absolutely.

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You know, the directors of companies

who, where the company has been

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placed into liquid liquidation,

they still have to earn a living.

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And it might be that the business

in which they have operated is an

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industry, which is what they're either

licensed to do or they have education

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in, and that that is their vocation.

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So at the end of the day.

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Those directors still need to

work and put food on the table

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is obviously frowned upon.

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If these directors are being seen to

be doing this on a regular occurrence.

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That certainly would be frowned upon and

that would certainly be looked at by the

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statutory bodies, however, you know where.

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A business owner has traded a business

and for one reason or another has incurred

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an event which has had a fi adverse

financial impact on the uh, company.

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It may be that they place the company

into liquidation, set up a new

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company, and then look to buy the

business back, or buy the assets to

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enable them to operate a business.

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And in those circumstances, again,

that could provide a greater return.

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Into the liquidation from the

realization of the assets, then simply

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breaking the assets up and sending

'em to auction, because at the end

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of the day, it's all about maximizing

the value of the company's assets

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to then repay those two creditors.

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And I imagine in a lot of cases there

aren't a lot of assets in the business.

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I mean, if people are renting

a space that's not an asset.

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If it's largely service driven or if

it's even, it is driven by product that

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is, you know, coming and sitting on a

shelf and then going out straight away.

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There's not a lot of, there can

be a lot of businesses that don't

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have a lot of assets in them,

particularly in the service industry.

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Yes.

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And particularly with small, a lot of

small businesses, we are finding that

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even with the change in the manner in

which people do business these days, you

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know, there is less need to warehouse

stock with the advent of drop shipping

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and third party logistics where it's more

of a just in time type of sale than it

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is, you know, gone are the days where

there were warehouses full of stock.

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Ready for the sales to come through.

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You know, now a lot of people drop ship

where the stock is held, manufactured,

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and held by the manufacturer, and then

delivered direct to the customer, which

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makes sense because again, that one way

of reducing the cost of a business is

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to reduce the stockholding and reduce

the warehousing costs of savings.

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As businesses have grown, they've

found more inventive ways of

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actually doing business to keep

those costs down, to increase margin,

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which has been been a positive.

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And just while we're on the subject of

liquidation as well, I mean, I guess the

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question is, is do people see liquidation

as particularly in compared to something

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like, you know, bankruptcy and the

like, is liquidation a valid tactic?

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To put a business in a better

situation and it's a reset.

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I mean, things like, you know, they're in

a lease that just isn't right for them,

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and is it the best way to get out of that?

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Or other arrangements and things

that sometimes it's a good

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business tactic to reconfigure?

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Not really, because

liquidation is the end.

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Generally.

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There is, once a company goes into

liquidation, there is actually no

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coming back out of liquidation it.

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May be that a cause of liquidation

could be a lease contract with which

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the entity is no longer able to afford.

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Therefore, its only alternative is that

the use of voluntary administration

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and deed of company arrangement and

the use of a small business restructure

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could in fact be a strategy to

attempt to deal with some of those

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onerous contracts such as a lease.

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Those particular avenues or alternatives

to liquidation are probably best suited

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in dealing with things such as that.

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Mm-hmm.

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Certainly stuff that you hear all

the time, and there's a number,

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particularly in the retail sector, I

would imagine, where people are, you

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know, they're on a high, that there's

an opportunity to get into a shopping

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center and they think by being in the

shopping center is going to increase

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traffic, increase sales, et cetera.

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And then they're whatever period

of time down the track when they

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might realize that has not achieved

the same levels that have hoped

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and knee starting to go backwards.

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One of the major issues with those

types of leases is the personal

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guarantee component that goes with them.

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The majority of those, for want of a

better term, shopping center leases,

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unless negotiated out, will have a

standard personal guarantee clause.

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So what you quite often find is that

whilst the business was unable to be

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profitable and ends up getting wound up.

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With a significant debt owing

to, in respect to its suppliers

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and creditors and maybe some tax.

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Quite often we find that the landlord

is generally paid up to date because

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the business owners want to ensure

that they can open the doors on

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a daily, weekly, monthly basis.

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Mm-hmm.

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But when the company is placing the

liquidation mid lease, it doesn't

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end there because the leasing owner.

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He's able to make a claim for the balance

generally for the balance of the lease for

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which not only the company is personally

liable for the balance, despite being up

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to date with it's rent and not in arrears.

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A claim he is made against is often

made against the company and then also

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made against the director's personally

pursuant to the personal guarantees.

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And quite often we found in

those types of scenarios that.

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The company will go into liquidation,

and then depending on the financial

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circumstance of the business owner

personally, the business owner may then

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have to look at a personal insolvency

alternative, if not bankruptcy,

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as a result of that ancillary

debt owing pursuant to the lease.

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I imagine that's not an easy thing

to negotiate out of a lease for

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people listing in and contemplating

signing a lease at the moment.

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You know, those kinds of personal

guarantees might be the difference

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between someone agreeing to lease

a space to you and not correct.

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Now, there is an obligation on

the landlords and the light to

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mitigate their any loss, but if

after a company is wound up and the

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space is vacated, if the landlord.

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He's unable to relet the space for

whatever reason, for a significant

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period of time to the end of the lease,

well then that liability still stays

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with the business owner personally.

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A lot of for people to consider

in this kind of situation.

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And I think it's important that we go

back to also talking about the different

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kites of liquidation because we've got.

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As you mentioned earlier on, there's

the, there's a situation where you've

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got the court winding it up versus

creditors and, and the voluntary style.

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So obviously I imagined that you don't

want to end up in a situation where

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you've got the court winding you up.

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Is it better to jump before you're pushed?

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It depends on the

circumstances, absolutely.

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But what we often find is that if it

gets to a court winding up, really the

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business owners had exhausted all avenues.

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They're really left with nothing

in the business to enable them

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to deal with the issue at hand.

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And that issue is being a creditor

who is pursuing for a debt owing

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and rightfully petitioning the court

to have a liquidator appointed.

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And whose decision is it

about which liquidator to use?

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The petitioning creditor is the

person who obtains a consent from

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a liquidator should be appointed.

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So the decision as to.

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The liquidator who will be used is that

of the creditor pursuing the debt out.

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And I guess that's a, that in itself

is a difficult thing to see, you know?

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Is it, how do you find that

people make that decision?

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Is it based on just someone they know?

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You know, what is the criteria for people

choosing someone to fall into that spay?

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Sure.

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Well, for someone to be a

liquidator, they need to be a

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registered liquidator with acid.

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And what you often find is that the.

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Winding up process is a legal process

and the firm of lawyers that is attending

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to the winding up process on behalf of

the creditor generally has relationships

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with one or a number of insolvency

professionals who they will refer the

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matter to and obtain a consent from.

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There's a lot for people to

unpack and work that out.

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I think, you know, it's, it seems simple,

but it's not a straightforward decision

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to make because I imagine different.

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People in that space have different

approaches as well, and a lot,

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I imagine as well has to do with

the people arrangements and how

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you get on with people because it

is such an emotional environment.

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Yes, it is.

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As we've, everything irrespective of the

type of appointment being a, a voluntary

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appointment or a court appointment, you

know, as insolvency practitioners, we

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need to approach these matters with a

certain amount of empathy, but at the

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same time, we're also there to do a job.

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We are there to.

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Investigate the company's affairs,

determine why it has failed, make

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sure that there's been nothing

untoward that has occurred,

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and report back to creditors.

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So irrespective of whether the

appointment is via the court

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or done voluntary, you know.

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Really as a liquidator, we act

for the creditors and we are there

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to provide them with a report as

to why they're not getting paid.

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Well, that's it for this episode of

the IO Insolvency Options Podcast.

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I hope you've got plenty of valuable

knowledge and practical steps for whatever

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your situation is from Darren today.

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And if you need guidance on

insolvency matters, contact Darren

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Vadi directly@insolvencyoptions.com

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au or call 1804 6 3 3 2 8 or of course

you could connect with Darren on

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LinkedIn details in the show notes below.

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With over 30 years of experience,

Darren and his team provide

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personalized solutions.

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For both personal and corporate

insolvency challenges.

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This episode was produced by my

team at podcast done for you.com

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: 00:15:42

au helping professionals

share their expertise through

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: 00:15:45

powerful podcast content.

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If you found value in today's episode,

please like, comment and subscribe

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: 00:15:51

to the IO Insolvency Options podcast

wherever you are listening to this.

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: 00:15:55

Your engagement helps us

reach more business owners who

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: 00:15:58

need these crucial insights.

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Until next time, remember, there's always

a way forward when you know your options.