Voluntary liquidation (construction)

What is a Creditors Voluntary Liquidation?

Creditors Voluntary Liquidation occurs when the directors and shareholders of a company resolve that the company is insolvent, and its affairs should be wound up. Often referred to as a Business Liquidation, it is a fast and effective strategy to deal with a company that can no longer pay its debts. 

Clarity makes resolution easier to achieve. By working together, we can put mechanisms and processes in place that help move things towards a suitable outcome.

Mitch Griffiths (Co-founder / Director) 

Industry 

Construction 

Background

A medium-sized construction company specialising in residential property construction found itself in financial difficulty due to a range of internal and external factors, including defective work claims. Rapsey Griffiths was called upon to review the Company’s viability and identify the most appropriate response to the challenges it faced. 

Core Problem

A multi-faceted challenge

Following a business viability review, Rapsey Griffiths determined the Company was insolvent and unable to continue trading. Poor quoting practices had resulted in losses on a number of projects. Litigation from home owners due to purported defective works was also in effect, adding to the high levels of personal stress being experienced by the owners and managers of the company. 

As the business lacked the capacity to undertake a turnaround strategy, an approach needed to be formulated that provided a way for the Company, its stakeholders and its creditors to move forward. 

The solution

 Finding the way forward

Given the significant debt involved and the Company’s inability to pay its debts as and when they fell due, Rapsey determined that the best solution would involve: 

• Entering a Voluntary Creditors Liquidation 
• Establishing and realising the assets of the Company 
• Communicating with employees and creditors regarding the liquidation process 
• The liquidator dealing with incomplete construction projects and assisting customers claims under the home owners warranty insurance 

The outcome

While liquidation is generally a last resort, the benefits of undertaking the Creditors Voluntary Liquidation suggested by Rapsey Griffiths meant: 

• Averted a standard director penalty notice (DPN) being issued by the ATO (subject to lodgements being made on time)  
• Enabled employment entitlements to be paid in full via the Fair Entitlements Guarantee (FEG) scheme 
• Saw employee superannuation paid from the assets realised by the liquidator  

• Allowed customers to have their projects completed by another construction company  
• Resulted in unsecured creditors receiving a distribution of 10c /$  
• Releasing the company from debts of approximately $840,00 

The liquidation assisted the directors to comply with their duties, providing employees and creditors with a return on outstanding debts.