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Corporate Insolvency

Reasons You May Be Worrying About Corporate Insolvency

  1. Business debts piling up
  2. Cash flow problems
  3. Losing sleep over how you will pay your employees and suppliers
  4. Being chased for money by creditors, government agencies or suppliers
  5. You have lost the passion or motivation that you first had for your business

Applying for Corporate Insolvency May Help Clear Your State of Mind

There are several reasons why businesses find themselves in financial difficulty. It can be from poor cash flow resulting from adverse economic conditions, unfavourable legal action being taken against the company, ATO debt issues, or unpaid creditors.

Regardless of the matter, there are several options available to deal with your debt concerns. These include assistance in reaching an arrangement with your creditors, help required with winding down your business, or support with bankruptcy, administration or liquidation processes.

At the Bankruptcy Advisory Centre Pty Ltd, we have the experience to guide you through these processes and take the burden off your shoulders!

We encourage you to call us at 1300 887 210 for a complimentary, no obligation chat to discuss the right solution for your specific situation.

Corporate Insolvency and Insolvent Company Trading explained Simply.

An insolvent company is one that is unable to pay its debts when they fall due for payment. An investigation into insolvency is focused on when the company or person (the entity) ceases being able to pay its debts as they need to be paid, and it is about the inability to pay significant debts.

It must be clearly noted that just because an entity was not paying its debts does not mean that it could not do so and was insolvent. They may have decided not to pay for some other reason. For insolvency, the business/entity must have been unable to pay the debts due to a lack of resources.

Insolvent company trading thus occurs when directors allow their company to incur debts when the company is insolvent, resulting in civil penalties, compensation proceedings and criminal charges. The liquidator can then make a compensation claim against a director if those debts are unpaid when the liquidation commences.

In such a situation, a director may be held personally liable to compensate creditors for the unpaid debts incurred from the time the corporation became insolvent to the start of the liquidation.

Which Parties Can Make Insolvent Trading Claims?

Liquidators will have the first opportunity to make insolvent trading claims. If they decide not to make a claim, creditors may start their own actions, but creditors’ claims are limited to the amount of their individual debt.

Why Are Liquidators Allowed to Make These Claims?

By law, liquidators are obliged under the specific provisions of the Corporations Act 2001 to investigate the existence of any insolvent company trading claim and, if so, take appropriate action. Furthermore, directors have a positive duty to prevent the company from trading if it is insolvent.

Under the Corporations Act, failing to stop a company from incurring debts if it cannot pay is a breach of the directors’ duty. Directors may have to pay compensation to the company for losses creditors have incurred under that breach of duty.

What Are the Signs You May Be Heading Towards Corporate Insolvency?

  • The company is unable to pay its debts as and when they are due and are meant to be paid in a timely manner.
  • The company is unable to offload assets at short notice to meet any debts owed without affecting the ability of the company to continue to trade comfortably at a reasonable profit margin.
  • Key internal stakeholders have resigned, citing concerns about the company’s financial health or trading position.
  • Agreements with financiers have gone into default or are likely to go into default.
  • Trading losses are continually occurring, and/or cash flow is problematic. The sale of stock is slow, and/or debts aren’t collected systematically.
  • An absence of a budget or business plan or one that is insufficient to monitor operations and the company’s financial position is not known.
  • Funding facilities have reached their limit, and you cannot negotiate a new limit or further financing.
  • The company cannot produce accurate financial information on a timely basis to comply with regulatory requirements or other third part requirements.
  • Even though directors are considering continued funding for trading losses, there is no recovery plan.
  • The company is paying your creditors outside of agreed terms or in amounts not specific to invoices, or your suppliers have placed you on cash-on-delivery (COD) terms only.
  • Taxation obligations aren’t being paid when due such as PAYG, GST or Superannuation, due to cash flow or the reluctance of the directors to lodge such returns.
  • Legal actions have been taken, or notice has been made of such action against your company.
  • The company is making frequent credit payment arrangements and is in default.

Please note that there are only some of the indicators for you or your company to consider in determining whether your company is facing insolvency challenges and directors require appropriate advice, from qualified professionals.

What Are the Next Steps if I Think I’m Facing Corporate Insolvency?

It is important to remember that if you have received reliable advice that you are dealing with an insolvent company, that you cease incurring any additional debt.

Unless you have the ability to restructure, refinance or obtain further equity funding, your options are to consider going into voluntary administration or liquidating your company. Please refer to the information here for more details on going into voluntary administration or liquidation.

Need more information about corporate insolvency? Contact us


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