A company is insolvent when it cannot pay its debts when they are due. When a company’s liabilities begin to exceed its assets and it does not have sufficient means of addressing its payment obligations, it could be made insolvent by one or more of its creditors.
PCL Lawyer’s team of experienced insolvency lawyers have acted for companies throughout all of the various stages of insolvency and have advised business owners of the wide variety of options available to them. Our experience shows that there are many ways to turn a business around and having the right advice and the correct strategy can ensure a business is adequately protected.
We regularly advise business owners who find themselves in difficult financial circumstances, either as creditors chasing payment of debts, or as debtors unable to manage their debts. (I am assuming you want this to be consumer-based and not mention acting for liquidators and administrators)
Insolvency does not have to be the end of a business. There may be opportunities to restructure or reinvent the business, or alternative methods of repaying outstanding debts. Obtaining legal advice and exploring the options available for a company can help a business become more streamlined and effective.
We are experienced in advising business owners in difficult circumstances to find a way forward through insolvency and getting their business back on its feet. We can assist creditors and debtors with the following:
Directors owe a wide range of duties; including the duty to ensure that a company does not trade whilst it is insolvent. A director who allows a company to incur new debts when they know, or ought to know, that a company is insolvent, can be personally liable for the company’s debts and required to pay those debts themselves. A director may also be liable for additional civil or criminal penalties.
Whilst the penalties for insolvent trading can be severe, the ‘safe harbour’ provisions may apply to reduce or remove liability for a director who acts proactively to address a company’s solvency issues. If you are a director of a company facing financial difficulty, our experienced insolvency lawyers can advise you on your duties and whether you meet the requirements of the safe harbour provisions.
A deed of company arrangement (DOCA) is a legal agreement between a company and its creditors which sets out how a company will address its outstanding debts, while avoiding the need for liquidation. A DOCA can be proposed by the company’s directors or by a creditor, and must be approved by a majority of its creditors.
Successful DOCA’s allow a company to continue trading, avoid the costs of liquidation and provide creditors a better outcome than if the company had been placed into liquidation. A company with an agreed DOCA may remain in the control of its directors. However, as a DOCA requires the approval of a majority of a company’s creditors, and the company must usually comply with its terms for a period of years, it is usually reserved as a final attempt to address a company’s insolvency.
Our lawyers are experienced in advising directors on whether they should propose a DOCA, negotiating with creditors, and drafting the DOCA document.
It is important to note that, when a company is placed into liquidation and a liquidator or administrator is appointed, they are independent and do not act for the company’s directors.The liquidator must report their findings to ASIC, particularly any findings that a company or its directors may have breached any insolvency laws prior to its liquidation.
It is not uncommon for liquidators to attempt to recover loans paid to directors or related parties, or many other kinds of payment made in the six months prior to the company’s liquidation which are preferential to the creditors of the company. We do not recommend that you attempt to deal with these matters without legal advice.
Companies unable to trade out of financial difficulties must be placed into insolvency. When a company is liquidated, a liquidator is appointed to collect the company’s assets and pay its debts. Liquidation can begin voluntarily, by directly approaching a liquidator, or forcefully by court order following an application to have the company wound up by one of the company’s creditors, most often by statutory demand.
As well as the power to sell assets, liquidators may commence or defend legal action on behalf of the company and review certain payments made by the company.
Administration is used to manage the affairs of a company which is insolvent or likely to become solvent. It differs from liquidation by allowing the company under administration to continue trading and restructure its affairs. Administration may be entered voluntarily by directly approaching a liquidator. While it is uncommon, a company may be forced into administration by court order.
When appointed, the administrator takes control of the company to find a way to allow the company to return to solvency. The administrator is required to investigate the company’s financial affairs and report to its creditors about how it will continue to trade, and why that is preferable to immediately winding-up the company.
When company administration is successful, the company will be returned to the control of its director. When it is unsuccessful, the company will be placed into liquidation.
Our experienced lawyers are familiar with the intricacies of insolvency and the best methods by which a company may address its debt. There is no one-size-fits-all approach, and many companies can resolve their insolvency without immediately being placed into insolvency.
If you are the director of a company which is insolvent, or you suspect might be insolvent, you should contact us as soon as possible. By applying our objective view to your company, and relying on our wide range of contacts within the industry, we can develop a business-protection strategy.
A statutory demand is a formal demand for payment of a debt owed by a company within 21 days of it being received. A valid statutory demand is a serious document which can quickly result in a company’s liquidation and should not be ignored. If you have received a statutory demand, you should seek legal advice as soon as possible.
If the statutory demand is defective, the debt claimed is disputed or is in some way invalid, you must apply to the court to have the demand set aside. If an application is not brought within this time, it cannot be heard by the court.
If a statutory demand goes unpaid within 21 days of it being received, the company is presumed to be insolvent and the debtor issuing the demand may apply to the Supreme or Federal Court to have the company wound-up and placed into liquidation. There are other reasons that a creditor may commence winding-up proceedings, but they are far less common.
Winding up proceedings then determine whether a liquidator should be appointed over the assets of a company.
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