Our team of highly experienced Insolvency Lawyers provides legal advice and services for all aspects of insolvency and corporate restructuring.

Test - Are you Insolvent?

In the circumstances below , a person (or a company) is insolvent. From a legal perspective, the Corporations Act 2001 defines a person who is not solvent as being insolvent (s.95A (2))

The test of insolvency is not whether liabilities are greater than their assets. Rather, the test is whether they (individual or cop ration or “entity”) can pay their debts as and when they fall due.

• Cash reserves - cash reserve forecasts
• Working capital, current cash flow - expected cash flow
• Reliable sources of funding
• Assets – realisable
• Times, dates - restrictions of debts
• True creditors - likely receivables

The effect of insolvency? No longer a criminal offence?

Some years ago a person who owed someone else money and did not pay could be arrested and imprisoned until the debt was paid. In certain countries, this is still the case.

In some circumstances (notably fraud) this can still happen in Australia.

Directors liabilities

If it is determined that a company is insolvent it is an offence if the directors of that company continue to operate and incur more debts.

If you are a Director OR a shadow director of a company that becomes insolvent there are some serious consequences to consider:

• You could lose your house and other assets in order to pay the debts
• You might be disqualified as a Director
• You could face heavy fines and, depending on the circumstances - possible jail time

If you are a Company Owner or Director in NSW and you think you might be trading insolvently, you should immediately contact us to discuss your situation.

Options – Insolvent Companies

Liquidation

A ‘Liquidator’ is appointed who determines the value of assets and sells them, whilst taking into the rules established by the Corporations Act. The company is deregistered.

Voluntary Administration

Administration is a statutory process provided by the Corporations Act. It is a form of insolvent administration by which either the company’s directors or, sometimes, a secured creditor, appoints a Voluntary Administrator who takes control of the company, investigates its history and financial affairs and makes a recommendation to creditors about how they should vote in respect of the company’s future. Creditors may decide to return the company to its directors, place the company into liquidation or enter into a directors proposed a Deed of Company Arrangement (DOCA), to allow trading. Benefits of a DOCA are that the company continues trading and the creditors usually receive more of their debt as opposed to a liquidation.

Receivership

“Receiver” usually refers to the appointment of a controller whose appointment comes either from the terms of a debenture or charge. A receiver may also be appointed by the Court to take control of specific assets for a particular purpose. A receiver’s responsibilities are usually to a single secured creditor such as the bank or lender; as opposed to a liquidator’s who is responsible for all unsecured creditors.

Individual Insolvency

Bankruptcy

If a person is unable to pay his or her debts when they are due, then a creditor to whom there is owed at least $5,000.00 may apply to the court for an order sequestering the debtor’s estate (ie placing them into bankruptcy).

Consequences - bankruptcy

Personal insolvency typically lasts for a period of three years, unless extended. You must forfeit to the trustee real estate, money, wages, motor vehicles and personal property for distribution to the creditors of their bankrupt estate. You may not travel internationally without permission.