Taking on risk is a part of doing business. Every time you supply goods, services or money to a company, you are accepting that they may be unable to repay the debt.
This can put you in a tough financial position. To avoid the worst, it’s important to keep an eye on the affairs of your debtors. This can be done in several ways, and there are formal channels you can use to monitor the performance of public companies.
In this article, we will discuss how to check if a company is in liquidation in Australia, and some of the warning signs you should look out for.
What is Liquidation?
Court Liquidation is a formal process whereby a company is wound up, its assets are sold and distributed to creditors, and the company ceases to exist. This typically occurs when a company is insolvent (e.g. unable to pay its debts on time).
Read our full guide on what is liquidation.
How to Check if a Company is in Liquidation in Australia
Public companies in Australia are required to report a wide variety of governance and financial information. The Australian Securities and Investments Commission (ASIC) provides most of this information free of charge on the following websites:
- Published Notices. The Published Notices website is maintained by ASIC. This is where companies lodge notices pertaining to external administration, including liquidation. The Published Notices database can be accessed by anyone and is free to use.
- ASIC’s Company Register. The company database can be searched for free and provides information about companies, such as internal documentation changes, debt documents, financial disclosures, and information about external administration.
You can also use the ASIC website to set up alerts so that you are notified when certain types of documents are lodged by a company.
Either of these sites can be used to track whether a company is in liquidation, administration or receivership. In some cases, liquidation information may also be published in the media, but this is uncommon and an unreliable way to track the solvency of companies you do business with.
Why Check if a Company is in Liquidation
Doing business with an insolvent company can have a serious impact on your own operations. When suppliers, customers and business partners are insolvent, they are unlikely to pay their debts on time. This reduces cash flow, making it difficult to meet your own obligations.
Being an unsecured creditor of a company in liquidation is a tenuous position. While liquidation is designed to serve your interests as a creditor, the reality is that creditors receive cents on the dollar. Absorbing this loss can be challenging, especially for small companies.
Checking whether a company is in liquidation is a quick way of determining your risk as a creditor.
Signs that a Company is Insolvent
As a general rule of thumb, if you are concerned that a debtor is insolvent, it’s worth checking ASIC’s registers for confirmation. Debtor companies that are facing financial difficulties may display signs like:
- Failing to pay debts on time
- Failing to pay debts in full
- Renegotiating debt agreements
- Requesting payment plans
- Complaints from employees about unpaid wages, superannuation and entitlements
- Major clients or contracts falling through
- Falling revenues in public financial statements
- Reports of director misconduct
- High turnover of directors and company officers
- Other creditors lodging formal debt notices
It’s good practice to keep an eye on the companies you do business with. If you notice the above signs, or if you are concerned about their financial position, trust your instinct and investigate the issue.
The earlier you act, the better. Liquidation provides low returns in most cases. Encouraging an insolvent debtor to explore options such as administration can lead to better outcomes.
If you address the issue early, you may also be able to negotiate a more manageable debt agreement, or develop a repayment plan that suits you and your debtor.
Who Should be Checking if a Company is in Liquidation?
The solvency of a company is relevant to everyone they do business with. You may need to check whether a company is in liquidation if you fall into the following categories:
- Creditors. If you have lent money, services, assets or product to a business, you could be affected by insolvency.
- Suppliers. It’s common for goods and services to be provided in advance of payment. This puts your company at a disadvantage if the client is struggling financially.
- Customers. Customers often pay for goods and services before they are delivered. If a company is insolvent, there is a strong chance you will never receive the goods or services you are entitled to.
- Investors. Company investors bear significant risk during liquidation. Unless you are also a creditor, it is unlikely that investors will receive a dividend during liquidation.
- Shareholders. Like investors, shareholders receive very low priority in liquidation. Shareholders typically don’t receive a dividend during liquidation.
Contact the Liquidator if a company you do business with is placed in liquidation. You will need to lodge your claim with the Liquidator to receive a dividend at the end of the process.
Manage Your Risk with the Registered Liquidators at SV Partners
The world of business is powered by credit. Many companies act as creditors for suppliers and customers, which can leave you in a challenging position if a debtor becomes insolvent.
Checking whether debtors are solvent or in liquidation is a simple way to manage your risk. If you are holding bad debts, or if you are concerned about the solvency of a debtor, speak to SV Partners.
SV Partners has a team of registered Liquidators. We have vast experience in managing court liquidation, voluntary administration, receivership and other insolvency matters. If you are struggling to recover a debt from an insolvent company, we can help you work through your options.
Contact us to find out more, or book a confidential consultation with our team today.