As both a Registered Liquidator and Registered Bankruptcy Trustee, I quite often hear about the plight of a family company director or individual who is in financial difficulty being seduced by unlicensed or unregistered supposed professionals (also referred to as pre-insolvency firms) about how best to deal with their difficult financial position, yet only to end in a worse position both financially and emotionally after taking such advice.
Such seduction is akin to bait advertising that occurs both online and in other forms of media. It promotes a sense that everything will be sorted out and that the consequences will be very little. By advertising this way, it is effectively taking advantage of an emotionally vulnerable family company director or individual when what they really need is proper professional guidance.
Recently ASIC has commenced writing to directors of companies that are subject to a Winding Up Application to provide facts about untrustworthy advisors. Such communication is also a broader attempt by ASIC to curb phoenix activity which unchecked becomes a very real form of anti-competitive behaviour acting against those businesses that are genuinely trying to do the right thing.
What are some of the key signs of untrustworthy advisors? These were outlined in ASIC’s recent communication with certain directors and include:
1. These advisors may contact you “out of the blue” and make promises that can result in bad advice.
2. These advisors may suggest you transfer assets owned by your company into another company without paying for them.
3. These advisors may be reluctant to provide their advice in writing.
4. These advisors may tell you to destroy books and records or withhold or delay providing them to the company’s liquidator, if appointed.
Family company directors who believe their companies may be in financial distress (including having received a Winding Up Application) should contact sooner rather than later, a Registered Liquidator and resist the temptation to take “cold calls” from self-proclaimed specialists whose experience is often limited to being a former director of a company that went into some form of insolvency administration or a former bankrupt. In this regard, ASIC is currently looking at making it easier via their website for directors to find or locate a Registered Liquidator in their local area so they can get competent advice.
Directors ought to be aware that ASIC and the ATO have recently conducted raids across the country in a bid to crack down on
“pre-insolvency firms” who have allegedly encouraged phoenix activities, tax avoidance and GST evasion. Typically I see these untrustworthy advisors surface when the ATO or other statutory bodies seek to commence a Winding Up Application against a company to recover monies owed. Upon receipt of the Winding Up Application, directors of the company are “cold called” by these untrustworthy advisors and promised an immediate solution to their problems by having the company placed in voluntary liquidation prior to the Winding Up Application being heard in court.
In my experience, the vast majority of family company directors endeavour to do the right thing, however, they are vulnerable to being misguided by untrustworthy advisors who generally receive a considerable fee for what ultimately may be considered as poor advice. I expect that ASIC and the ATO will continue to focus on this area. As a Registered Liquidator with over 20 years experience, I am familiar with the sensitive and pragmatic manner in which financial difficulty needs to be discussed and options explored with directors and shareholders.
My message to family company directors and individuals who find themselves in this position is to not be tempted by these untrustworthy advisors, but rather review reputable sites like www.asic.gov.au and make sure they are speaking to a professional that holds the appropriate registrations as opposed to someone that just wants a “sale”. Importantly creditors are able to change a liquidator introduced via a pre-insolvency firm (as well as more generally). Thus some transactions that are said to be trouble-free are likely to in fact be the subject of a revearsal if they are not dealt with properly.