AU: Insolvency and liquidation

1. Describe the meaning of ‘insolvency’ with regards to companies.
Section 95A of the Corporations Act 2001 (the Corporations Act) provides a definition of solvent and insolvent with reference to a person, but the definition can be extended to a company, which is considered a legal person:
(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.


2. Briefly describe the procedures through which the Corporations Act attempts to avoid liquidation of companies if possible.
The main intention of the Corporations Act 2001 is to treat liquidation as a last resort. The Corporations Act 2001 provides extensive guidance on the rights of members and creditors whenever it is decided that the life of the company is in danger of drawing to a close due to financial difficulties. The Corporations Act also attempts to avoid the liquidation or winding up (these terms can be used interchangeably) of companies in certain circumstances by allowing the appointment of receivers and/or administrators to protect the rights of creditors and members, and to help the company through any financial difficulties it may face. In an attempt to avoid liquidation, Part 5.3A of the Act deals with the topic of appointing an administrator to a company whenever the directors believe that the company may be insolvent. According to Australian Securities and Investments Commission (ASIC) (on its website www.asic.gov.au), administration is designed to resolve the company’s future direction quickly. The administrator takes full control of the company to try to work out a way to save either the company or the company’s business. If this is not possible, a liquidator will ultimately be appointed to wind up the company.
The website of the ASIC – the body that administers Corporations Act 2001 also provides guidance for directors, shareholders and creditors when a company becomes insolvent. For example, ASIC instructs directors that, if their company is insolvent, they must act not only on behalf of shareholders, but also on behalf of creditors and not allow the company to go further into debt. Unless it is possible to promptly restructure, refinance or obtain equity funding to recapitalise the company, generally the options are to appoint a voluntary administrator or a liquidator. The first signs of potential or existing insolvency may be detected by creditors, who may then initiate the receivership for the satisfaction of their claims before it is too late.


3. Who can appoint a receiver for a company facing financial difficulties?
A receiver or a receiver and manager may be appointed by a court or by creditors, e.g., debenture holders, according to the terms of the agreement, in order to protect the security of those creditors. A receiver must always be a registered liquidator.
In general, receivers are appointed at the instigation of a secured creditor who is given such power in his or her trust deed. For example, a receiver may be appointed by a debenture holder as a result of failure by the company to abide by the provisions of the trust deed (e.g. failure by the company to pay interest to the debenture holders).
The power of a court to appoint a receiver is given by statute, and the court will make such an appointment when it perceives that it is just and convenient that such an order be made. The court would generally be required to make the order when a situation arises that is not covered by a trust deed or the strict letter of the security arrangement, or where parties other than secured creditors are seeking the appointment of a receiver.


4. Outline the role and powers of a receiver appointed by a secured creditor.
The main effect of appointing a receiver (and manager) would be that relevant property can be sold in order to repay the debt of the secured creditor.
The receiver is responsible to the secured creditor, not to the company, but also has the same general duties as a company director. The receiver’s role is to:
• collect and sell enough of the charged assets to repay the debt owed to the secured creditor
• pay out the money collected in the order required by the Corporations Act
• report to ASIC any offences or other irregular matters they discover in performing their duties.
In performing those duties, a receiver has great powers stipulated in s. 420 of the Corporations Act:
(1) Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed.
In accordance with s. 429(2)(b), when a receiver is appointed, the company is required to submit to him or her a report as to affairs of the company in accordance with Form 507.
A receiver is required to open his or her own special bank account (s. 421) and, in accordance with s. 432, to lodge every 6 months an account of the receiver’s receipts and payments. Form 524 is used for the purpose of submitting this information.
Once the security is paid off, the receiver may simply resign. Alternatively, a winding up order may be made even though a receiver is in possession of the property of the company. The receivership still continues, and the receiver may be appointed as the liquidator. If a separate liquidator is appointed, the receiver is entitled to remain in control of the property on which the security is based. He or she still has the power to hold and dispose of relevant property, including the power to use the company’s name for that purpose.


5. Who can appoint a voluntary administrator?
According to s. 436A of the Corporations Act 2001, directors are expected to appoint a voluntary administrator to the company even before it becomes insolvent.
(1) A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:
(a) in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
(b) an administrator of the company should be appointed.
An administrator may be appointed also by a liquidator or provisional liquidator if he or she believes that the company is or will become insolvent (Corporations Act s. 436B), or by a secured creditor who is entitled to enforce a charge on the whole, or substantially the whole, of a company’s property (s. 436C).


6. Outline the role of an administrator appointed to a company which is insolvent.

According to ASIC, administration is designed to resolve the company’s future direction quickly. An independent and suitably qualified person — the administrator — takes full control of the company in an attempt to save either the company or the company’s business. Section 437A(1) of the Act spells out the role of an administrator.
(1)    While a company is under administration, the administrator:
(a)    has control of the company’s business, property and affairs; and
(b)    may carry on that business and manage that property and those affairs; and
(c)    may terminate or dispose of all or part of that business, and may dispose of any of that property; and
(d)    may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company were not under administration.

According to ASIC’s website and s. 438A of the Act, the administrator, after taking control of the company, must investigate and report to creditors information as to the company’s business, property, affairs and financial circumstances, and on the three options available to creditors. These are:

1. End the administration and return the company to the directors’ control
2. Approve a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts, or
3. Wind up the company and appoint a liquidator.

The administrator must give an opinion on each option and recommend which option is in the best interests of creditors (s. 439A). The creditors then make the decision as to which option should be taken (s. 439C). If option 2 is taken, the administrator will continue his or her duties in order to see the deed of arrangement through to its end, if suitable to the creditors. If option 3 is taken, the administrator can become the company’s liquidator and, according to s. 446A, the liquidation process will proceed under the requirements of a creditors’ voluntary winding up.

The administrator takes over all the powers of the company and its directors, and the powers of directors are suspended (s. 437C). The administrator has the power to sell or close down the company’s business or sell individual assets in the lead up to the creditors’ decision on the company’s future.  The administrator must also report to ASIC on possible offences by people involved with the company, as strict liabilities apply to officers who continue to trade on the company’s behalf. According to s. 437D, only the administrator can deal with company’s property and any such transaction or dealing is void unless:
(a) the administrator entered into it on the company’s behalf; or
(b) the administrator consented to it in writing before it was entered into; or
(c) it was entered into under an order of the Court. (s. 437D(2))

Additional powers are given to the administrator under s. 442A which states:
•    Without limiting section 437A, the administrator of a company under administration has power to do any of the following:
(a)    remove from office a director of the company;
(b)    appoint a person as such a director, whether to fill a vacancy or not;
(c)    execute a document, bring or defend proceedings, or do anything else, in the company’s name and on its behalf;
(d)    whatever else is necessary for the purposes of this Part.

Even though the administrator is given wide powers under the Act, he or she is also given wide responsibilities. For example, under s.443A, the administrator of a company is liable for debts he or she incurs in the performance or exercise of any of his or her functions and powers as administrator.

According to s. 438E of the Act, an administrator is required to keep proper accounting records and to submit a statement of receipts and payments each six months.


7.    Outline the role of directors before and during voluntary administration.

If a company is insolvent, the directors can get themselves into serious trouble with the Law if they allow the company to continue to trade. According to s. 436A of the Corporations Act 2001, directors are expected to appoint a voluntary administrator to the company even before it becomes insolvent:
(1)    A company may, by writing, appoint an administrator of the company if the board has resolved to the effect that:
(a)    in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
(b)    an administrator of the company should be appointed.

According to Australian Securities and Investments Commission (ASIC) (on its website www.asic.gov.au), administration is designed to resolve the company’s future direction quickly. An independent and suitably qualified person — the administrator — takes full control of the company in an attempt to save either the company or the company’s business.

The company’s directors are required under the Act to help the administrator in performing his or her necessary tasks. According to s. 438B, each director must:
(1)   
(a) deliver to the administrator all books in the director’s possession that relate to the company, other than books that the director is entitled, as against the company and the administrator, to retain; and
(b) if the director knows where other books relating to the company are—tell the administrator where those books are.
(2) Within 5 business days after the administration of a company begins or such longer period as the administrator allows, the directors must give to the administrator a statement about the company’s business, property, affairs and financial circumstances.
(3)    A director of a company under administration must:
(a)    attend on the administrator at such times; and
(b)    give the administrator such information about the company’s business, property, affairs and financial circumstances; as the administrator reasonably requires.


8.    Briefly discuss the ways in which a company may be wound up, indicating the likely circumstances in which each is applicable.

There are two types of "windings-up" of companies:
(a)    winding up by the court;  and
(b)    voluntary winding up by creditors or members.

(a) Winding up by the court - addressed in Parts 5.4 to 5.4B and 5.6 of the Corporations Act 2001.

General grounds on which a company may be wound up by the court are listed in s. 461 of the Corporations Act.

The court may order the winding up of a company if:
(a)    the company has by special resolution resolved that it be wound up by the court; or
(b)    the company does not commence business within one year from its incorporation or suspends its business for a whole year; or
(c)    the company has no members; or
(d)    directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or
(e)    affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(f)    an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole; or
(g)    ASIC has stated in a report prepared under Division 1 of Part 3 of the ASIC Act, that, in its opinion:
(h)    the company cannot pay its debts and should be wound up; or
(i)    (ii) it is in the interests of the public, of the members, or of the creditors, that the company should be wound up;
(j)    (k) the court is of opinion that it is just and equitable that the company be wound up.

However, the most common reason for winding up by the court is insolvency. Under ss. 459P, 462 and 464 of the Act, various people and institutions may apply for the winding up of an insolvent company. These include the company itself, a creditor, a director, Australian Securities and Investments Commission (ASIC) and a contributory. A contributory is defined in s. 9 and refers to the holders or immediate past holders of shares in the company. On hearing the application, the court may then issue an order to wind up the company, and the liquidation of the company is said to have commenced on the day of the winding up order, unless the company has been previously operating under an administrator. In this circumstance, the date of commencement is the day on which the administration began (see ss. 513A and 513C).

A provisional liquidator may be appointed any time after the filing of the application (s. 472(2)) in order to see that the status quo of the company is maintained; that is, that the assets are not quickly drained from the company. On the day that the court issues the winding up order, it appoints a liquidator (s. 472(1)). It is common practice for the provisional liquidator (if any) to be appointed liquidator.

(b) Voluntary winding up by members or creditors – addressed in Parts 5.5 and 5.6 of the Corporations Act 2001.

(i) Voluntary Winding Up – Members:
•    A voluntary winding up by members commences with the passing of a special resolution to wind up the company. The statutory requirement is that the company can pay its debts as and when they fall due.  Accordingly the directors will make a written declaration that they believe that the company can pay its debts in full within a period not exceeding twelve months.  This is known as a "Declaration of Solvency" (Form 520).


(ii) Voluntary Winding Up – Creditors:
•    There is no declaration of solvency in this case as the company is unable to pay its debts.  The winding up proceeds under the control of both members and creditors in separate meetings. The members still resolve that the company be wound up but their choice of liquidator is subject to ratification by creditors, at a meeting held immediately after the members meeting which places the company in liquidation.


9.    What is the purpose of the report as to affairs (Form 507), the summary of affairs (Form 509) and the statement of receipts and payments (Form 524)?

A Report as to affairs (Form 507) is required under s. 494(2) as an accompanying document to the Declaration of Solvency (Form 520) in a voluntary winding up by members. The report as to affairs is also required under s. 475(1) of Corporations Act 2001 to be submitted by directors of the company to the liquidator not later than 14 days after the making of the winding up order in a court ordered winding up.

The purpose of the report as to affairs is to provide information concerning the company's estimated realisable value of assets and any expected surplus or deficiency of assets after deducting creditors' claims.  It is really a statement of financial position prepared on a realisation basis excluding the usual reporting assumptions of going concern and historical cost.

Form 509 – Presentation of Summary of Affairs of a Company (Summary of Affairs) is similar to Form 507 except that it is less detailed. It is required to be submitted by the company to the creditors along with a list of creditors. It is only used in a creditors’ voluntary winding up.

Form 524’s purpose is to provide a statement of receipts and payments and is used by an administrator, a provisional liquidator, a liquidator and a receiver. See Form 524 to see its contents.


10.    Outline the powers of a liquidator in winding up a company (a) under a court order and (b) in a voluntary winding up.

The powers of a liquidator in a court ordered winding up are wide reaching and are specified in s. 477 of Corporations Act 2001, but are controlled by the court. Primarily they allow the liquidators to carry on the business of the company so far as it is necessary for its beneficial winding up.

    The liquidator is also required to pay any class of creditors in full and make compromises with creditors and agreements regarding calls, liabilities and claims existing between the company and contributories. (Further powers are dealt with in detail in Section 33.5 of the text). 

The powers of a liquidator under a voluntary winding up are specified in s. 506 of the Act and are similar to those of a liquidator in a court ordered winding up. In addition, the liquidator may exercise the power under s. 478 of a liquidator appointed by the court to settle the list of contributories and under s. 483(3) in respect of making calls on contributories.

    The liquidator also exercises the powers of the court in fixing a time to have debts and claims proved and convene a general meeting of the company to obtain agreement for matters as the liquidator thinks fit. Finally the liquidator must pay the debts of the company as far as possible and settle the rights of contributories.


11.    Describe how a company’s debts are identified and admitted on liquidation.

Section 553 of the Corporations Act entitles all creditors’ claims to be admissible to proof against the company in liquidation.

(1)    Subject to this Division [Division 6] and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.
(2)    Where, after the relevant date, an order is made under section 91 of the ASIC Act against a company that is being wound up, the amount that, pursuant to the order, the company is liable to pay is admissible to proof against the company.

The actual procedures to be followed if proof of debts is required by the liquidator are provided in Corporations Regulations 5.6.39 to 5.6.57. Debts may be admitted by the liquidator without formal proof; however, if a formal proof is requested, the creditor must complete Form 535 ‘Formal proof of
debt or claim’ found in Schedule 2 of the Regulations (Corporations Act s. 553D).

The size of any debt (including a debt that is for or includes interest) is calculated for the purposes of the winding up as at the relevant date (Corporations Act s. 554), which is defined in s. 9 as the day on which the winding up is taken to have begun, in accordance with ss. 513A–513C.


12.    Discuss the order of priority of payment in the event of winding up a company.

The order of recovery in terms of s. 556 of the Corporations Act 2001 is as follows:

(a) Secured creditor:
-    Secured by a non-circulating or circulating interest.

(b) Preferential unsecured creditors:
-    liquidation expenses (the liquidator is a relevant authority
-    costs of administration prior to liquidation
-    other liquidation expenses
-    salary
-    workers’ compensation
-    long service leave.

(c) Ordinary unsecured creditors (rank equally):
-    research costs
-    PAYG income tax
-    directors' fees
-    telephone bill payable
-    audit fees
-    accounts payable/Trade creditors.

(d) Deferred creditors:
-    Creditors are paid in order of priority, which is usually the following order: creditors secured by a non-circulating security interest (specific charge), creditors secured by a circulating security interest (floating charge), preferential unsecured creditors, ordinary unsecured creditors and then deferred creditors. In cases of insolvency, some preferential unsecured creditors rank for payment ahead of creditors secured by a circulating security interest, namely wages payable, leave payable and retrenchment payments payable.


13.    Who are the contributories of a company? Explain.

The contributories of a company are past or existing members who are likely to contribute to the property of the company in the event of it being wound up.  In general terms the liability for existing shareholders only relates to those who have uncalled capital (partly paid shares). In this case their liability only extends to the amount unpaid on their shares.

    Former shareholders are not liable to contribute where:
(a)    they disposed of their shareholding more than twelve months after the commencement of  winding up.
(b)    the debt or liability of the company occurred after they ceased to be members.

    The liability of such former shareholders will only arise where existing members cannot make the required contribution i.e. the former shareholder will be required to contribute the uncalled part of the share capital that was unable to be recovered from the existing shareholder. 


14.    Outline the principles to be followed in apportioning a deficiency among contributories.

Assuming the creditors are to be paid in full but there is insufficient funds to pay out all shareholders, reference will be made to the company's constitution to determine whether there exists a priority as to repayment of capital.

If there are different classes of shareholders with different rights in the event of a winding up (i.e. preference shares or different categories of ordinary capital with different rights enshrined in the constitution), calls will be made on the contributing class of ordinary capital in order to satisfy the priority enjoyed by the other classes of share capital.

If there is only one class of shareholder, then the deficiency of capital will be borne equally amongst that class.

If there are insufficient funds to pay the creditors and partly paid shares exist, the court is empowered, in a winding up by the court, to issue an order to make calls on all or any of the contributories to the extent of their liability, to be paid into a bank account kept by the liquidator (Corporations Act 2001 s. 483(3) and (4)). In a voluntary winding up, power to make calls on contributories is conferred on the liquidator by s. 506(1)(d). To enforce payment of the call, the liquidator may bring a court action against the contributory. Section 527 states that the liability of a contributory is of the nature of a specialty debt, and is payable when calls are made for enforcing the liability.

Once all shares have been paid in full, any deficiency of funds must be borne by creditors in the reverse order of priority of payment. Thus, deferred creditors suffer losses first, followed by unsecured creditors, then preferential unsecured creditors, and so on.

15.    If there is a surplus on liquidation, discuss how the surplus is to be apportioned among contributories.

In the case of a surplus of capital, reference will be made to the constitution to assess the rights of shareholders. If, for example, there exists preference shareholders as a class (and that preferential status is recognised in the constitution) then that class will be paid first with ordinary shareholders receiving the balance equally amongst themselves. Also a surplus might attract the interest of the Australian Taxation Office. Companies in liquidation are subject to taxation laws equally with those not in liquidation, and if necessary the liquidator would lodge a tax return.

Procedures for distributing a surplus to contributories are set down in Corporations Regulations 5.6.71 and 5.6.72.


16.    What must a liquidator do if he or she is unable to collect unpaid call money from shareholders?

If there are insufficient funds to pay creditors requiring a call on contributories and there is no response to that call, the liquidator may take action against that contributory as the requirement to pay the call is a specialty debt permitting the liquidator then to sue the contributory for recovery. The liquidator will in pragmatic terms assess the situation as to whether there is reasonable chance of recovery before proceeding with the action of recovery being conscious of the cost/benefit nature of these actions as liquidator.


17.    Arrears of dividends are paid in the winding up process in certain circumstances. Outline those circumstances.

Reference to the constitution is required to ascertain the degree of preference existing to the preference capital and any arrears of dividend. If the dividend is a legal debt and not yet paid, those shareholders will have a priority over other classes of shares but after payment of unsecured creditors. If there is no substance to the claim of preference, there will be no claim recognised.


18.    Describe the accounts used in accounting for a liquidation.

The realisation of assets is accounted for in the company’s records using a liquidation account and a liquidator’s receipts and payments account. Note that this latter account is actually a cash account that recognises the cash of the company now controlled by the liquidator; however, given that the information included there is exactly the same as that required to be included in the statement of receipts and payments according to ASIC Form 524, in this text is it identified as the liquidator’s receipts and payments account. The cash available at the liquidation date is recognised as the beginning balance of the liquidator’s receipts and payments account. As the liquidation process begins, first the carrying amounts of all assets that will be sold by the liquidator (i.e. except cash and assets subject to a security interest) are transferred to the liquidation account. If the carrying amount of an asset is the result of a balance in the asset account adjusted for a related contra‐account (e.g. the carrying amount of a non‐current asset is the balance in the asset account minus the related accumulated depreciation), the balance in the asset account is written off as a credit to the asset against a debit to the liquidation account, while the balance of the related contra‐account is written off by debiting the contra‐account against a credit to the liquidation account. Second, on realisation (sale) of the assets by the liquidator, the liquidator’s receipts and payments account is debited and the liquidation account is credited by the proceeds on sale.

Assets over which a non‐circulating security interest (i.e. a fixed charge) is held are commonly taken into possession by the secured creditor and sold. Any net proceeds after payment of the security are then handed over to the liquidator. Note that the gain on sale represents the excess of the sale proceeds of the secured asset over the carrying amount of the asset and is recognised as a credit to the liquidation account. If the secured asset was sold for a loss, the credit to the liquidation account would be replaced by a debit for the amount of loss. The liquidator’s receipts and payments account will record the net proceeds after payment of the security. For example, if the secured asset had a carrying amount of $15 000 and was sold by the secured creditor for $18 000, while the security interest was $13 000, the liquidator will recognise a gain on disposal of secured asset of $3 000 (i.e. $18 000 − $15 000) as a credit to the liquidation account, while the secured creditor will hand over to the liquidator $5 000 in cash (i.e. $18 000 − $13 000), which will be recognised as a debit to the liquidator’s receipts and payments account. As the unsecured and secured assets not taken into possession by the secured creditor were already debited to the liquidation account in the first step and the net proceeds of disposal of these assets are credited to the liquidation account, the balance of the liquidation account represents, after the adjustments for the secured assets, the gain/loss on liquidation of all the assets.

The liquidator needs to pay off the remaining creditors in strict order of priority from the balance of the liquidator’s receipts and payments account, which includes the proceeds of sale of the assets. However, if that balance is not enough to cover those claims and the shares are only partly paid, the company will issue calls on contributories to pay further amounts due on the shares. The money received on calls will increase the balance of the liquidator’s receipts and payments account, being recognised as a debit to it.

In the course of determining a list of creditors, the liquidator is likely to find certain liabilities that were not recorded in the company’s records; for example, liquidation expenses and remuneration, and unrecorded interest payable. Such unrecorded liabilities, in effect, increase the loss or reduce the gain on liquidation, and are best accounted for by debiting the liquidation account and crediting the appropriate liability accounts in order for payment to proceed.

In some cases, certain creditors may be willing to settle for an amount lower than the carrying amount of the debt. This represents a discount given to the company by those creditors and should be accounted for by debiting the appropriate liability accounts and crediting the liquidation account, thus increasing the gain on liquidation of the net assets. Next, the payment of creditors’ claims will be recognised as a credit to the liquidator’s receipts and payments account.

After the payment to creditors, the remaining cash should be distributed to contributories as a return of capital. The accounting procedures to return capital to contributories are as follows.

1. Calculate the appropriate distribution of funds for each class of shareholder in accordance with the rights of contributories as discussed in section 33.8.

2. Make any necessary further calls on the various classes of partly paid shares and recognise the money received on those calls as a debit to the liquidator’s receipts and payments account.

3. Transfer share capital to a shareholders’ distribution account. If there is more than one class of shares, separate shareholders’ distribution accounts may be used for each class, or one account may be used with multiple columns. In this text one account is used for simplicity. If there are shares with calls in arrears, and the liquidator is unable to recover these calls, it is important that the shares be forfeited before share capital is transferred to shareholders’ distribution. Any forfeited shares surplus is treated as part of the gain on liquidation and is not refunded to the previous shareholders.

4. Transfer all reserve accounts (including any forfeited shares surplus from the previous step and retained earnings) to the liquidation account. Note that if the retained earnings account has a debit balance (i.e. accumulated losses), its balance is transferred to the debit side of the liquidation account; otherwise, to the credit side, together with the other reserves. The balance of the liquidation account after these transfers represents the ultimate deficiency (if it is on the credit side) or surplus (if it is on the debit side) to be borne by/distributed to contributories.

5. Pay any appropriate capital distribution to the various classes of shareholders by crediting the liquidator’s receipts and payments account and debiting the shareholders’ distribution account.

6. Transfer the balance of the liquidation account (representing the deficiency or surplus) to the shareholders’ distribution account. At this point, all accounts in the ledger should be closed.