What becomes of your licence can differ wildly during insolvency processes.
The treatment of business licences when a company enters financial distress varies significantly depending on the insolvency process chosen. This difference is particularly notable when comparing traditional insolvency procedures like voluntary administration or liquidation to the newer small business restructuring (SBR) process.
Licence cancellation in traditional insolvency
When a company enters voluntary administration or liquidation, the cancellation of licences may be a concern for some businesses. Different states have different licensing bodies, and as a result different rules apply. The specific rules applying to each state is a topic too broad for this article, but if you contact one of our friendly Worrells principals in your state, we can assist with specific enquiries.
The most common licences we observe being affected by liquidation and voluntary administrations are:
Security master licence
Contractor licence will be cancelled if the holder is a corporation and has been subject of a winding-up order under the Corporations Act 2001
NDIS registration (potentially)
Voluntary administration
In the case of voluntary administration, many regulatory bodies view the appointment of an administrator as a trigger for licence suspension or cancellation. This is based on the presumption that the company may no longer meet the financial or operational requirements necessary to maintain its licences. It may also reflect concerns that regulatory bodies have in some industries where control of the entity is assumed by a third party.
Liquidation
The consequences can be even more severe in liquidation. As liquidation typically signals the end of a company's operations, licences may be automatically cancelled upon the appointment of a liquidator. This can have dire implications in relation to the value of a business.
Licence retention in small business restructuring
The small business restructuring (SBR) process, introduced in Australia in January 2021, offers a markedly different approach to licence retention. In many cases circumstances there is no need to notify licensing bodies. For example, holders of a building licence or real estate agency licence in NSW will have no obligation to notify Fair Trading. Likewise, in Queensland, the Queensland Building and Construction Commission (QBCC) will immediately suspend a building licence in the case of Liquidation or Administration, but no so in the case of SBR.
A primary reason for this is the element of control. In voluntary administration and liquidation, a registered liquidator takes control of the entity; this is known as a creditor in control insolvency appointment. In SBR, the debtor is in control during the insolvency appointment, meaning that the Company’s directors remain in control throughout the process.
Conclusion
The differential treatment of licences is an advantage of the SBR process over other insolvency appointments. However, it should be noted that this is still a relatively new process, and it is possible that licensing authorities have not yet reformed their licensing processes to adjust. Things may change in future.
If you have questions about your specific circumstances, please reach out to your local Worrells Principal for guidance.
