The vast majority of the liquidation appointments that we handle at HLB Mann Judd Insolvency WA, are voluntary appointments. That means the directors are often referred to us by their accountants and if when a formal appointment is made, there are no surprises about the process.
For us, this means we endeavour to inform stakeholders of their obligations to the Liquidator upfront – and this includes the company’s accountant.
The purpose of this article is to set out some of the basic obligations levied at the accountant acting for a company in liquidation.
Books and Records
A critical step for a Liquidator in the early stages of a liquidation appointment is to gain access to the insolvent company’s books and records. For the accountant, this means delivering up previously prepared financial statements and tax returns, access to management accounts (i.e. MYOB or Xero), the secretarial volume and any other company records in their possession such as contracts, trust deeds and lease documents.
Whilst formal notices can be issued to accountants (or any other party for that matter) in this regard, which compel the accountant to comply under the provisions of the Corporations Act 2001, they are often not required because in most cases, the accountants cooperate.
Report on Company Activities & Property (“ROCAP”)
In a liquidation, the directors are required to provide the Liquidator with a ROCAP – a two part form that sets out the assets and liabilities of the company and provides details about the activities, operations and causes of the demise of the company.
Whilst the filing of the ROCAP is an obligation of a director, it is common for the accountant to assist the directors with the preparation of the financial figures and other responses that go into this form.
Accountants who do assist the directors should give some thought to how they might be remunerated for their assistance (which is usually by the director), which although usually not overly onerous, does requires time and focus nonetheless.
Assistance with Investigative Aspects
A key aspect of the liquidation process is to understand and report on how and why the insolvent company failed. A critical element of that determination is a detailed examination of the records of the company.
This process often requires the input of the accountant on how certain transactions were treated for accounting purposes, particularly in respect of related party transactions such as loan account transactions and repayments and other asset transfers.
In rare cases, investigative processes may escalate to a public examination in the courts, however as noted above, in the vast majority of cases, the accountant cooperates with our reasonable requests.
Tax Clearance
In cases where dividends become available for distribution to unsecured creditors, a Liquidator must obtain a clearance from the Australian Taxation Office before distributing the assets to creditors.
This may require the completion of a backlog of outstanding tax lodgements, and in certain cases, the Liquidator may request that the accountant assist with the process – of course on the basis that the account be paid for their efforts.
Concluding Comments
As noted above, the majority of appointments that we take on are voluntary, meaning we have (in most cases) an open, transparent and professional relationship with directors and accountants.
This means we do not often have to lean on the statutory powers available to us to obtain records and other information and we can all work together during the liquidation process.
So if you have a client that has gone into liquidation, bear in mind the points mentioned above.
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the HLB Insolvency team and looks after the operations of the practice.
If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to gquin@hlbinsol.com.au.
