Failing to keep accurate track of your accounts receivable (that is, debts others owe to your business) can have many negative effects on the health of your business. If you have cash tied up in unpaid debts, this can severely affect your own ability to pay debts to your creditors and suppliers, which can eventually damage your reputation and credit rating.
Insolvency law has become a generic term for what used to be called company liquidations and bankruptcy. As defined by the Corporations Act, insolvency is the inability to pay debts, as they fall due, out of the debtor’s company resources and refers specifically to businesses and companies.
Often insolvency practitioners are appointed by the courts to oversee affairs of troubled corporations to either:
• Have them trade out of their difficulties; or
• To wind them up.
Variations of insolvency, include, but are not limited to, the following:
• Voluntary administration
• Insolvent trading
• Directors liability
• Schemes of Arrangements
A voluntary administration starts when an administrator is appointed and it usually terminates upon the execution of a deed of company arrangement or a resolution by the creditors that the company should be wound up. It can also be triggered through a realisation by the creditors that the company is insolvent or is likely to become insolvent or through the enforcement of a company guarantee. The general purpose of voluntary administration is to resolve the company’s future direction and to do so quickly. The appointment of an administrator may be done by the company, the chargee or a third party and the effect is immediate. This independent person then takes full control of the company to try to save it and if this is not possible then the administrator’s aim is to administer the company’s affairs in a way which will bring the best return to creditors.
The most important effect of administration is that the company’s business, property and affairs come under the control of the administrator and during that period can only be dealt with by the administrator, or with written consent or by the leave of the court. The administrator’s role is also to investigate the company’s financial circumstances and to make recommendations for the company’s future.
Some of the other effects of the administration are:
• The shareholders position is frozen;
• Contracts are not automatically terminated but it will depend on the terms of the contract and
• Winding up proceedings and execution against the company cannot be commenced or continued by creditors.
Some of the benefits of administration are:
• To maximise the company’s chances of being saved;
• To maximise the return to creditors;
• That it allows time for the preparation of a proposal;
• It prevents creditors acting to the detriment of the company because assets cannot be removed;
• Director’s personal PAYG responsibility may be avoided;
• The company is controlled by an independent person and
• It is a simpler and less costly option rather than a formal scheme
Our dedicated team of Accountants and Lawyers can assist you with require further information on voluntary administration or insolvency. Complete and submit our online enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.