Appointing an external administrator is rarely an easy decision for a director.
Once the decision is made, many directors feel a sense of relief, as the company's responsibility now rests with the external administrator. However, while responsibility for the company passes on, directors retain a range of statutory obligations that continue, and accountants are often best placed to help clients meet them.
Accountants, as trusted advisors to the company and its directors, typically have the deepest insight into the company’s financial history, creating a unique opportunity to help the client navigate external administration calmly and efficiently.
Below are practical ways you may be able to support your client through an external administration process.
1. Get the records across - Fast
Directors must deliver the company’s books and records to the external administrator under section 530A of the Corporations Act 2001 (“the Act”), with section 530B extending a similar obligation to other persons holding company records, including accountants. In practice, that means general ledgers, BAS and tax lodgements, payroll records, loan account ledgers, bank reconciliations and login access to accounting software.
A failure to comply with sections 530A and 530B of the Act must be reported to ASIC by the liquidator. Accordingly, encourage your client to release everything promptly. If you receive a request for records from the external administrator as an advisor, promptly provide all records, even if the file isn’t complete, and don’t let outstanding fees or a busy season become the reason records are delayed.
2. Engage early, engage often
As the administration progresses, so does the external administrator’s investigation into the examinable affairs of the company. It is standard practice for the external administrator to write to directors and officers with questions about the company’s affairs, and clients should expect this as a normal part of the process rather than a sign that something has gone wrong.
It is common for directors to avoid engaging, in the hope that enquiries will simply die down. In reality, unresponsiveness only frustrates the external administration process and increases the likelihood that the director’s conduct is referred to ASIC. Encourage your client to respond promptly and candidly to the external administrator’s enquiries, and where an answer genuinely can’t be provided, to explain why, rather than staying silent.
3. What happened before appointment matters most
External administrators focus closely on what happened in the lead-up to appointment, particularly asset sales and payments out of company accounts. These transactions routinely attract scrutiny, and it is common for an external administrator to issue a formal request for information on anything of interest occurring in that period.
Before such transactions occur, or as soon as possible afterwards, consult with your client on whether they are for a proper purpose and on genuinely commercial terms.
Where transactions do need to proceed, make sure your client retains the supporting evidence: an independent valuation, a contract of sale, a tax invoice, and clear documentation of how and when consideration actually changed hands. This evidence is what will ultimately determine whether a transaction is later challenged as a voidable transaction under Part 5.7B of the Act.
4. Know where you client stands personally
Whilst a liquidation marks the end of the company’s life, it can mark the beginning of personal exposure for the director. Directors may be exposed to personal liability through director penalty notices issued by the ATO for unpaid PAYG withholding, superannuation guarantee charge, or GST, as well as through personal guarantees given to landlords, financiers or suppliers. Your client may be further exposed through asset loan accounts or other claims arising in the external administration, such as those under Part 5.7B of the Act.
Help your client map these exposures as early as possible, ideally before appointment, so there is time to plan or fund a response. Don’t wait for the external administrator, a creditor or the ATO to raise it first.
The earlier a client facing financial difficulty is referred to an insolvency practitioner, the more options remain on the table – informal workouts, voluntary administration and liquidation – rather than a forced or reactive appointment. Waiting until creditors, the ATO or a financier force the issue tends to narrow those options considerably and can heighten the personal and professional risk to everyone involved, including advisors.
If you have a client showing signs of financial distress, our team is available for a confidential, no-obligation discussion about the options available to them. Contact Worrells today.
Authors: Jay Shah and Patrick Kendall
