Frequently Asked Questions
An insolvent company is one that is unable to pay its debts when they fall due for payment. The three most common corporate insolvency procedures are: voluntary administration, liquidation and receivership.
While bankruptcy can result once a company is in liquidation, it isn’t always the case. However, it is more likely if you have personally guaranteed the debts that are owed by the company. In this situation, creditors may reserve their right to recover the debt from you personally. The liquidator may also pursue you for a settlement in the event you were trading the company while it was insolvent or if you breached any laws.
Insolvent trading is the law under the Corporations Act section 588G that says that if a company is insolvent and a director allows the company to incur a new debt, then the director can be personally liable for the new debts incurred.
This is possible although should not be something that becomes a regular strategy. You should seek professional advice as this process requires careful planning.
You will need to seek tax advice as to how this situation will affect you. Liquidators that are appointed by the court are not required to keep shareholders updated on the status or outcome of the liquidation.
All notices relating to the appointment of an external administrator are published on ASIC’s Insolvency Notices website, which can be found here: www.insolvencynotices.asic.gov.au. You can search using the company’s name or ACN.
For more detailed information, another option is to undertake a company search on the ASIC register although a fee is payable. www.asic.gov.au.
You can also check a person’s individual insolvency status on the National Personal Insolvency Index at www.afsa.gov.au. A fee is payable.
The company director is usually not liable for the company’s debts unless they have personally guaranteed debts, have an expired Director Penalty Notice from the Australian Taxation Office (prior to when an administrator has been appointed), they have been found guilty of insolvent trading, or owe certain personal liabilities.
This depends on the amount of money that can be obtained from the trustee in bankruptcy who is selling the bankrupt’s assets and from any cash amounts the bankrupt holds. Often you will just be paid a percentage of what is available if there is insufficient money to pay all creditors.
Winding up is a process where a company’s outstanding matters are finalised, its assets are liquidated and it ceases to exist as a company. If you have received a winding up order, then ideally you should pay the debt or prove that you are solvent to the courts and creditors.
One option is to use equity in your property to organise a short-term loan. You will need to seek professional advice for this strategy.
The company director is required to cooperate with the liquidator during the insolvency process by promptly completing their Report as to Affairs form and providing all required company books and records.
We work with most businesses, particularly small-to-medium sized enterprises across all sectors. Because of our nationwide presence, we can work with companies in any geographical location. For further information and confidential advice, please contact us on (02) 9236 8333 or email firstname.lastname@example.org.