What is Insolvency?
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. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.
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
If you are a director of an insolvent company, you may not be protected from insolvency proceedings. Trading while insolvent may lead to your personal assets being seized or frozen, whilst administrators try to prove negligence or insolvent trading. In the extreme there is a possibility you may be held personally responsible for unpaid taxes and debts and could face criminal prosecution, fines and even jail time.
If your company is insolvent, do not allow it to incur further debt. Unless it is possible to restructure, refinance or obtain equity funding to recapitalise the company, generally your options are to appoint a voluntary administrator or a liquidator.
Liquidation involves drawing to a close all of a company’s dealings, so that the business operations can be shut down. Assets are turned into currency, and subsequently used to settle any liabilities. Once all creditors’ debts and other liabilities have been settled, the remaining money, if any, is disbursed to stakeholders of the business.
Here at The Quinn Group, our team of experienced accountants and lawyers can help you if your business is struggling and you would like more advice on insolvency and winding up your business. If you would like to arrange and appointment or you would like to find out more information, please submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166.