Business as usual. We're open for face to face meetings, phone and video calls.

Is your businesses suffering? Contact Bankruptcy Advisory Centre for bankruptcy advice, liquidations, and administration. Your one stop shop.

Insolvency Consequences in Australia

Consequences of Insolvency in Australia

Insolvency happens when an individual or a business is unable to repay their debts as they start becoming due and payable. People often get confused between bankruptcy and insolvency, but there is a clear distinction between the two according to Australian law.

Bankruptcy applies to individuals and insolvency applies to organisations, with each having a particular process. Just like declaring bankruptcy has its consequences, a company becoming insolvent also has to deal with the consequences.

Insolvency is the generic name for entities that can pay their debts. Within that, personal insolvency relates to bankruptcy, debt agreements, Personal Insolvency Agreements and ‘corporate insolvency’ relates liquidations, receiverships, DOCAs etc.

What is Insolvency in Australia?

Insolvency happens when an entity faces financial distress and fails to repay its debts. It is essential to note that corporations are treated differently compared to individuals in such cases. The court interprets corporate insolvency through the usage of a cash-flow test – this only happens when assessing when a company became insolvent and generally only when a Court is considering a ‘voidable transaction.’

Insolvency Consequences

There are numerous consequences for companies that become insolvent. The Corporations Act does include certain statutory defences for the company directors. However, it would be difficult for the directors to use these defences to their benefit if they had failed to stay informed about the company’s financial position.

Some of the major consequences of insolvency in Australia include:

Civil Penalties

If the company is found to be conflicting with the insolvent provisions as specified in the Corporations Act, it will result in civil penalties that would be charged against the director of the company. These penalties might include pecuniary penalties that could be up to $200,000.

Compensation Proceedings

These proceedings for the money lost by the creditors could be initiated personally against the director of the company by a creditor, liquidator, or ASIC. Aside from the penalties, the compensation proceedings order might be made.

These payments could be unlimited and often result in the personal bankruptcy of the company’s director. The director’s personal bankruptcy would further disqualify them from acting as a director of the company or managing a company.

Criminal Charges

If the court finds one of the factors of insolvency to be dishonesty, it might lead to criminal charges being filed against the company’s director. This can result in imprisonment of around five years, a fine up to 2,000 penalty points, or both.

If the director is found guilty of a criminal offence, it can result in the disqualification of the director. ASIC has prosecuted numerous directors who were found guilty of letting their companies incur more debts when it was already insolvent. Liquidators have successfully sought orders to make the company directors personally liable for the debts incurred by the company.

Fortunately, there are steps that the company can take to protect itself from financial distress and reduce the possibility of entering insolvency.

How To Identify Insolvency?

The best way to prevent the insolvency of your company is to learn how to identify the major signs. It is also important to consult a bankruptcy or insolvency expert to ensure the survival of the company.

Many companies try to resolve the problem themselves without seeking expert consultation and end up worsening the situation. Some of the major warning signs include the following:

l   Poor cash flow

l   Ongoing losses

l   Not managing financial records or not organising the internal accounting processes

l   Overdraft limit reached or defaults on a loan or interest payments

l   Increasing queries or complaints by the suppliers

l   Lack of or poor business plan

l   Continuously mounting debt where the liabilities are becoming greater than the assets

l   Neglecting to create budgets and cash-flow forecasts

l   Unrecoverable loans

l   Difficulties in collecting debts or selling stock

l   Letters, summonses, demands, warrants or judgements from solicitors piling up against the company

l   Inability of obtaining finance

l   Difficulties in raising funds from shareholders

l   Overdue superannuation liabilities and taxes

l   Director resignations, board disputes and/or management personnel loss

Is Insolvency Right For Your Company?

The best way to determine whether or not insolvency is right for your company is to consult a registered insolvency expert who can evaluate the current financial situation of your company.

It is important to be aware of the problems, find the root cause and determine your options. This will help you make informed choices and might help you save your company. Some possible options might include modifying the activities of your company, restructuring the company, refinancing, or appointing an administrator.

There are multiple ways of dealing with insolvency based on your situation to avoid insolvency. Using the right professional insolvency assistance, you would be able to make an informed decision and come out of your financial problems. You can get a no-obligation, free consultation with our experts to discuss your insolvency problems.



  • As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.

    For Ross, it’s important to see the people behind the financial problem –not just numbers.

    Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.

    The unit she & her husband live in is not owned by them, but subject to a 20-year lease.

    The money to be repaid by the management was due only at sale, when the client finally left the retirement village.

    Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.

    Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.

    The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.

    The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.

    The moneys paid represented about 75% of what would have been available to creditors if they waited two years.

    It is a win for the client and for the creditors.

  • I made an appointment with Andrew after finding him on google. I was nervous and apprehensive about what to expect but he made the process of bankruptcy extremely uncomplicated and stress free, allowing myself the opportunity to get the fresh start I was so desperate for. Thank you Andrew I could not recommend you enough.

  • Making the decision to go bankrupt was not easy however once I had spoken to Andrew i felt all my anxiety disappear. Andrew does not judge you and he has an innate ability to put you at ease. He took care of the whole process for me again reducing the stress involved with completing paperwork.
    Thank you very much.

    Hayley Eastough
  • I will definitely recommend Andrew Bell to anyone contemplating bankruptcy. Don't wait! Andrew is there to help. With his knowledge, he can advise you of the best path to take and assist with the mind boggling paperwork.

    Best of all, he is there for you through your entire bankruptcy period. Get your life back, it's not as bad as you think. Thank you Andrew for lifting the burden and allowing me to move on.

    Karilyn Mahon
  • I saw Andrew for 'advice only' on possible bankruptcy due to a divorce. Left an hour later with the paperwork all done and feeling like a new person!

    Andrew was extremely welcoming and made me feel so comfortable with my decision to proceed immediately.

    This was the best investment I have ever made and cannot speak highly enough of Andrew. He doesn't just give excellent service his follow up afterwards is amazing. Thankyou Andrew you made my 'new' life so easy to achieve!

    Vicki Johnston
  • Andrew was very helpful in helping me through the bankruptcy process, as a single mother left with a massive debt from my ex and our previous marriage. I was struggling to keep my head above water on a week to week basis.

    Andrew made me feel at ease immediately and helped me every step of the way, he happily and professionally answered any and all questions I had before, during and after the process. Thanks so much for your help Andrew!

    Aisha Edmonds
  • Would highly recommend Andrew to anyone having financial difficulties. Andrew made me feel very comfortable - he took care of everything and keep in regular contact with me throughout the whole process.

    Service was fantastic and he also keep in regular contact with me when everything had been finalised Thanks Andrew! can now get my life back on track.

    Cassandra Walsh
  • Very prompt service and excellent source of knowledge and information, I highly recommend Andrew's service for a quick turn around of circumstances.

    Eve Damjanovich
  • Andrew put my mind at ease in one easy appointment. Very satisfied with the outcome and service provided. Highly recommend Andrew.

    Tracey Douglas
  • Andrew was a steadying hand with his advice.Showing that things aren't as bad as first thought nor any obstacle insurmountable. If you have questions needing answers, Andrew is the person to ask. Thanks for your advice Andrew.

    Shane Thompson
  • Andrew was very knowledgeable, caring, helpful and compassionate when I went and saw him. He made me feel that I wasn’t the loser and failure that I thought I was being. Even down to the box of tissues on the table.. which I needed. Highly recommend to go see Andrew if your struggling. There is life after!

    Joanne Parker
  • Andrew and his team do an excellent job of helping their clients with bankruptcy advice and it is a pleasure to work with him.

    Gareth Lane
  • Don't hesitate contacting Andrew, I was stressed, struggled sleeping through debt. Andrew put me at ease. He listened to my situation and we decided on my next move. Andrew is professional and easy to talk too. I would recommend highly to anyone who wants help to give him a call. I appreciate your support Andrew. Regards Brett.

  • Andrew has given me back my life!!! After living paycheck to paycheck, I didn’t know what to do. Until I made the big step and booked an appointment with Andrew. As soon as I left his office I felt a huge weight lifted!!!

    Deezy H
  • Andrew was prompt, organised, friendly and efficient with the processing of my documents and made everything very simple for me so I didn’t need to deal with the added pressure and stress. Thank you Andrew for allowing me to start afresh and getting it done within a matter of weeks.


Fill the form below to download our Free Expert Bankruptcy Guide

What you need to know before declaring bankruptcy