Asset Protection (Insolvency & Bankruptcy)

Statutory provisions imposing personal liability and transaction avoidance provisions in relevant company and bankruptcy laws and other statutes are very real considerations in protecting ‘your’ assets – the product of your lifetime’s work – if your business fails. The loss of your personal assets can occur when your business fails and it can lead to your personal bankruptcy. This can and does happen quite frequently. With planning and continuing awareness you can take steps to better protect your assets from risks associated with the conduct of your business.

Practice area overview

The establishment of a business requires consideration of a number of legal issues or objectives (including risk isolation), which often are not completely compatible. Personal liability can result from acts and omissions in the conduct of a business by a business entity or from the choice of business entity.

You can, in some circumstances, be personally liable for liabilities of a business (entity) whether undertaken:

• Through a company.
• As a wholly owned company of another company.
• In partnership.
• As a limited partnership.
• As a trustee.
• As a joint venture participant.
• As an agent.

Substantial in-roads have been made by statute to impose personal liability on directors of companies and managers of businesses and on shareholders in some circumstances. Directors, managers and holders of ownership interests can be personally liable for the acts and omissions of the business entity due to statutory provisions. Personal liability can arise in a number of ways – ranging from unpaid corporate taxes to liability under guarantees/indemnities given by you to support your business or the business entity or structure that you adopt for the conduct of the business.

Those involved as directors and managers of a business should be aware that the use of a company was once an effective means of isolating a person from personal liability associated with the conduct of a business, but is now of reduced effectiveness.

These matters should be considered when choosing a business entity or structure as the application of avoidance provisions of bankruptcy and corporate insolvency legislation is of benefit to creditors and a substantial risk for those involved in business. Their application depends on the choice of business entity/structure adopted as they can provide some protection if your business (entity) fails.

You can:

• protect your personal assets through an informed choice of business entity or structure; and
• reduce the risk of the failure of your business (entity) resulting in personal liability arising for you.

The objective of asset protection is to put your assets beyond the reach of creditors if your business (entity) fails.

 

What we do:

We can help by:

• Reviewing your business structure and asset position.
• Identifying risks to your business and personal assets.
• Providing advice as to how you should structure the ownership of your business and personal assets to protect them from business creditors or other claims.
• Provide the necessary documents to effect better asset protection.

Corporate Insolvency: We act for financially challenged companies and creditors of financially challenged companies. Our services include advice and documentation in relation to various forms of insolvency administration issues including:

• Liquidations
• Provisional liquidations
• Administrations
• Receiverships
• Schemes of arrangement
• Retention of title
• Preference claims
• Directors liability for insolvent trading and un-remitted tax

Bankruptcy: We act for financially challenged persons and creditors of financially challenged persons.

Our services for creditors include:

• Issuing statements of claim in all civil courts and all associated processes to obtain a judgment
• Issuing bankruptcy notices and arranging service on the debtor
• Issuing bankruptcy petitions and obtaining a sequestration order, in the Federal Circuit Court, making the debtor bankrupt
• Applications to substitute a Petitioning Creditor

Our services for debtors include:

• Defending statements of claim.
• Applications to set aside Bankruptcy Notices.
• Applications to set aside default judgments.
• Appealing against adverse judgments & seeking a stay of the judgment in the lower Court pending the outcome of the appeal.
• Opposing personal & corporate Creditors’ Petitions for bankruptcy/winding up.
• Advice & assistance on personal & corporate Debtor Petitions bankruptcy/winding up.

Appointment as a director: A person appointed as a director should be aware of the potential for personal liability under the:

• Tax legislation which requires tax to be deducted at source from payments of ‘salary and wages’ (PAYG), prescribed payments (PPS) and reportable payments (RPS). The failure of a company to remit amounts to the Tax Commissioner by the due date for payment, creates a personal liability in each director for the amount outstanding. Each director is personally liable for the full amount of the unremitted sum. It is important to note that a person who becomes a director after a due date for remittance has passed without compliance, is also personally liable for the outstanding amount. If after 14 days the amount has not been remitted and no arrangement with the Commissioner has been struck, the new director can become personally liable for difficulties from the past;
• Corporations Act in the case of a trust where the corporate trustee does not have appropriate rights of indemnity against the assets of the trust; and
• Corporations Act in the case of a company or a corporate trustee where insolvent trading occurs.

Unpaid corporate taxes: Given that directors can be personally liable for unpaid corporate taxes, and the strict way in which the relevant tax legislation has been interpreted, all directors must be very wary of outstanding corporate tax liabilities, particularly on appointment as a director.

The tax legislation requires tax to be deducted at source from payments of ‘salary and wages’ (PAYG), prescribed payments (PPS) and reportable payments (RPS). The failure of a company to remit amounts to the Tax Commissioner by the due date for payment creates a personal liability in each director for the amount outstanding. Each director is personally liable for the full amount of the unremitted sum.