Bankruptcy & Insolvency

Even the most successful people can go through difficult financial times.

For a business, the trigger may be a change in the market place, an unexpected liability, or the accumulation of debts over time.  For an individual, it may be the loss of employment, some personal health issue, depression or family crisis, which triggers financial problems.

Whatever the cause, we are here to help business and individuals in financial difficulty. As well as providing clear legal options, we may be able to put you in contact with other service providers who can find a solution that avoids the worst outcome.

We also act for businesses and individuals who are owed money. We can assist with negotiating an acceptable financial outcome which avoids an expensive legal process.

  • What is the difference between insolvency and bankruptcy?

    The terms “insolvency” and “bankruptcy” both relate to the inability to pay debts as and when they fall due. There is one significant difference between these two definitions: “insolvency” is in relation to a company, whereas “bankruptcy” refers to individuals in their personal capacity.

  • What is Insolvency?

    So, what exactly is the meaning of “insolvency”  Insolvency is defined in the Corporations Act 2001 (under section 95A) and reads as follows:

    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.

    Essentially, a company needs to meet its day to day financial commitments and manage its cash flow in order to avoid insolvency. This is applicable to all companies in Australia, regardless of what state the company is registered.

  • What is Bankruptcy?

    What does it mean to be “bankrupt”, which is also referred to as “personal insolvency”, is found in the Bankruptcy Act 1966 (under section 5). Bankrupt means a person:

    1. against whose estate a sequestration order has been made; or
    2. who has become a bankrupt by virtue of the presentation of a debtor’s petition.

    A sequestration order (mentioned in (1) above) is involuntary bankruptcy.  It is when someone who you owe money to (called a creditor) makes an application to the Federal Court of Australia to make you bankrupt.

    On the other hand, a debtor’s petition (mentioned in (2) above) is a voluntary bankruptcy.  It is when someone makes their own application to the Court to be declared bankrupt.
    A person who declares bankruptcy is deemed a “bankrupt” for three years.

  • I am a director of a company and cannot pay the company’s bills. What can I do?

    You have three options for your company:

      1. Go into liquidation, which is the winding up of your company;
      2. Enter into voluntary administration, where an administrator is appointed to your company to investigate and see if it can be saved or should be wound up; or
      3. Go into receivership. If you cannot pay your company’s bills and there is a secured creditor, this is basically when a secured creditor of your company (for example, the bank) appoints somebody called a receiver to claim (or “receive”) some or all of your company’s assets.  The receiver is claiming those assets because they were held as security in case the company defaults in payment. The receiver would then sell those assets to get its money back.

     

  • Who deals with my insolvency or bankruptcy?

    For insolvent companies, the Australian Securities and Investments Commission (ASIC) administers the company’s affairs alongside a registered insolvency practitioner.  Depending on the situation that the company is facing, there are different insolvency practitioners involved in the process.

    For a company in liquidation, a liquidator is appointed to the company by either the company’s creditors or the Federal Court of Australia.

    For a company entering into voluntary administration, an external administrator is appointed in the place of the company’s directors.  The external administrator acts in the best interest of the creditors of the company and is completely independent from the directors.

    For a company in receivership, a receiver is appointed by either a secured creditor or the Court.
    For bankrupt individuals, the Australian Financial Security Authority (AFSA) administers the bankrupt’s estate alongside a trustee in bankruptcy.  The trustee is responsible for selling the bankrupt estate’s assets in order to pay the bankrupt’s creditors.

  • My company was served with a statutory demand. What do I do now?

    A statutory demand puts your company in the position where it can no longer avoid paying a creditor of the company.  If you are served with a statutory demand, it is best to act fast.  You have three options:

    1. Pay the amount in the statutory demand;
    2. Make an application to the court to set aside the statutory demand; or
    3. Ignore the statutory demand, and face the prospect of the company going into liquidation.

    The first option is available if you acknowledge that your company does owe the creditor money.  Your company must pay the full amount in the statutory demand, whether that be an immediate payment or an instalment payment plan if agreed with the creditor.

    The second option is available if you genuinely dispute the creditor’s claim and the amount owing on the statutory demand.  If this is the case, you may apply to the Court to have the statutory demand set aside.  This application must be made within 21 days from the date of receiving the statutory demand.  If you do not make this application within this period of time, you cannot apply to get the statutory demand set aside.

    The third option is available if you cannot pay the creditor or negotiate an instalment payment plan.  After 21 days, the creditor may seek to have your company wound up.  An unsatisfied statutory demand results in the presumption of insolvency, so long as the creditor makes a winding up application to the court within three months.  If the creditor makes a winding up application, there will be a date listed with the Court and the creditor can have the company wound up that very day.  Your company must immediately cease trading if it is wound up and declared insolvent.

  • I am a director of a company and my company has been wound up. Am I personally liable for anything?

    In most cases, you will not be personally liable for any of your company’s debts.  This means that if your company goes into liquidation, voluntary administration or receivership, you do not have to worry about paying any of the company’s creditors from your own personal funds.  The company is a distinct and separate legal entity, so you do not have to personally take on any of the company’s financial obligations.
    However, there are certain situations where a director of a company will be held personally liable for the company’s debts.  These situations include the following:

    • When a director of a company knows that the company is insolvent, but continues to trade anyway (and incurs more debts against the insolvent company);
    • When a director agrees to be Guarantor for any of the company’s loans and the company cannot repay those loans;
    • Illegal Phoenixing, which is when a director realises that the company cannot pay its debts as and when they fall due, and within the following 12 months registers a new company with ASIC and transfer all the company’s assets, thereby avoiding paying creditors; or
    • Outstanding tax obligations that the company cannot pay.

    There may be more situations where you will be personally liable.  If you are concerned that you may be personally liable for your company’s debts, we have the right people at Atkinson Vinden Lawyers to give you the right advice in dealing with any of your personal liabilities.

  • How can we help you?

    At Atkinson Vinden Lawyers, we can assist you in exploring one or more of the options available to you as a director of your company.

    We understand the practicalities of insolvency law and work closely with insolvency practitioners.  With this in mind, we have the right people to give you the right advice for your company’s particular situation.

    Working together, we can help you steer your company in the most sensible and cost-effective direction. Acting against the backdrop of Australia’s insolvency and bankruptcy laws, we will consider yours and your company’s best interests whilst ensuring that you adhere to your legal obligations.