Out of curiosity, if you are a director of two companies, and one goes in liquidation, what will happen with the other one? Will you still be able to continue with the other company, or they would recover money from the other company as well?
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I'm just looking for safest ways of not loosing everything one day. You never know, better be safe.
The 2 companies are separate legal entities. As such they are generally not affected by each other unless there are transactions between the 2 which involve unfairness or less than market value transfers etc.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry,
So it is much safer to have two companies, one for everyday business and other one for investment properties, cars, PROP houses, rather then hold it all under my personal name?
This one developer that i know has 3-4 companies, and each company owns 6-7 properties, so this is probably the main reason why he does it.
So what happens with 7 year ban after you go in liquidation, does that mean you can continue being director of the existing companies but you cant open up new ones in the next 7 years?
hi Vesali
Yes, you should never own assets in a trading business and never have too many eggs in the one basket. If you were running a business then the safest thing would be to have one company trade and another company own all the assets such as tables and chairs, computers, photocopiers and then another company supply the staff.
But if you own the shares in all these companies and you go down then creditors can get hold of your shares and thereby control the companies.
You should look at discretionary trusts used in combination with a company as trustee. I think your developer mate would own the properties in the trust with the company as trustee. This adds greater asset protection and tax flexibility.
If a company goes into liquidation the director is not usually banned. It would only happen if the director did something illegal or was charged with an offence relating to finance/fraud/corpations act etc. There is a data base of banned directors on the ASIC website you can search – look up Rivkin!
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Great advice Terry,
The only problem i see with trading company is, if i don't own any assets under that company it will be hard to get finances for new properties. But i will definitely look into trusts.
Another question when you have time,
If the building company is trading for few years and has its own builder's licence number, and does couple of projects, and after 4 years i close it down, bring all figures to 0, what will happen to the warranty for those projects completed? If something goes wrong with those houses, would fair trading seek me personally even though that builder's licence number and company don't exist? Home warranty covers when you disappear or die, but what about when company doesn't exist any more?
Lenders will require personal guarantees for any company or trust loan. They don't care that the company has no assets because the director or the trustee will personally liable. In fact some banks wouldn't lend money for a housing loan to a company that is trading.
I am not sure about the builder's licence bit, but I would suspect the licence attaches to a person who would be qualified as a builder. The warranty probably stops with the company, but it could be difficult for the builder to keep his licence or renew it if the builder was part of a company that went down and then started up again under a new company.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The reason i asked about builder's liability is i know one builder, who does shocking works, and he is been doing it for many many years now, and some of the jobs that he did were repaired by Home warranty insurances under 6 yrs, and not by him, so i dont know how he gets away with it, and still continues to do so, thats why i thought he probably changes company and builder's licence every 2-3 years.
See the thing is you take builder's licence under company name, its not your personal licence, thats why i think he can get away with it.
I would imagine the Dept Fair Trading would be on to this. They manage the licensing process and receive complaints etc. It would also be difficult for those sorts to get insurances. But I don't know how the systems works – they could be starting up again under someone else's license too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
In Victoria a building licence can only be held by a person. A licence cannot be issued to a company. If a company wishes to do building work it must have at least one director who is a licenced builder in the appropriate category. His name and licence number must be on the permts etc.
I would like to know the details of how this builder does get away with it. I would expect the warranty insurance provider to pursue him to recover costs.
Jazz77 in NSW is different, a builder MUST have a company licence if trading under the company, i nearly got fine $1,500 from Fair Trading back when i just started for not having company licence.
I don't know how he gets away from it, but i can only see one way out, he closes down the company and company doesn't exist any more, and Home Warranty pays for repairs.
I don't think Home Warranty insurers have the power to recover money from builders personal assets if his company doesn't exist any more. That's probably why its so hard to get Home warranty insurance.
And thats probably what he does.
Any other thoughts..
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