Insolvency

If a debt collector is constantly on your back then you may be looking at the possibility that you or your company is insolvent. If have a lot of debts and not much income and not many assets, you may be looking at the possibility that you are insolvent. So what can you do if you suspect that you are insolvent?

What is insolvency?
There is a no absolute test of insolvency. There are a a number of tests which are used by courts to determine exactly whay insolvency is, but the preferred defition it this:

A person or company becomes insolvent when they are unable to pay their debts as and when they fall due and payable.

Some of the other tests include the assets and liabilities test which means that a person or company is insolvent when their liabilities are higher than their assets. Generally this refers to current liabilities and not non-current liabilities although you need to talk to an account or insolvency lawyer to fully understand what this means exactly. Normally persons well versed in the language of insolvency refer to these tests as the cashflow test and the balance sheet test. In terms of Australian law, however, the casflow test is normally preferred.

What are the consequences for being an insolvent company?

If a company has become insolvent, it has become unable to pay its debts as and when they fall due and payable. This means that a company will need to either enter into a voluntary administration and produce a deed of company arrangement or that it will need to go into voluntary liquidation. Voluntary liquidation is where the control of a company is handed over to a liquidator with the consent of those currently in control of the company. Voluntary administration still allows the company to trade and if possible eventaul trade out of its debts. Voluntary liquidation simply means that the liquidator will sell off all of the assets of the company to realise their cash value and as a result pay off the creditors to the greatest extent possible, but creditors normally only recieve a few cents in the dollar as a result of this process.

If a company continues to tade while it is insolvent, it can have very serious consequences for the directors of the company. If a complaint is made, they can be prosecuted by ASIC for breaches of director’s duties under the Corporations Act 2001 (Cth). If your company is in this situation, you need to take action immediately to ensure that you are properly advised on what the out come of this situation could be. You can click below to talk our lawyers about this online now.

Also, if a company has become insolvent and continues to trade whilst doing so, its creditors can seek a court order that it be wound up. Normally the court that will hear an application like this is the Federal Court or the Supreme Court of the state that has jurisdiction over the company. The process which is used to start this is the issuing of a creditor’s statutory demand . If you have recieved a document like this you will also need legal advice about how to respond, you can click below to obtain this immediately.

What are the consequences of a person becoming insolvent?

This is what Bankruptcy is. If as a person you have become incapable of paying your debts as and when they fall due and payable, you are liable to becoming bankrupt. It is possible to declare bankruptcy voluntarily by filing what is called a ‘debtor’s petition’. This has some advantages for a debtor because it discharges you from your debts under the direction of the Bankruptcy Trustee. However, because this is entered on your record permanently unless you change your name it will be virtually impossible to obtain credit again. This is because most credit providers will check your credit rating before lending you money and the fact that you have gone bankrupt will be shown to a potential creditor. If you are flirting with the possibility of becoming bankrupt in any way, you should seek legal advice immediately.

Insolvency Resources

Bankruptcy
Bankrupt Company
Bankruptcy Court
How to Go Bankrupt and Get Rid of Your Debts

Debt Collection Letter Resources

• Bankrupt Company What happens when a company goes bankrupt and what to do if you are owed money by a bankrupty company.
• Bankruptcy Bacis Information about Bankrutcy and Insolvency. Essential reading if you are thinking of going bankrupt or want to make someone bankrupt.
• Guide to Filing a Creditor's Petition and other bankruptcy matters A brief guide to filing a creditor's petition in the case where you are a creditor. This is when you need to make somone bankrupt and you need a sequestration order.
• S.73 Composition in Bankruptcy What is a S.73 Composition in Bankruptcy? How can it help me? What do I need to do to get a s.73 composition in bankruptcy?
• Bankruptcy Court Banruptcy Court Information and how bankruptcy matters are heard. Basic information about the legal process of bankruptcy.
• How to Go Bankrupt and Get Rid of Your Debts
• Winding Up a Company Basics of Winding Up a Company how to wind up an insolvent and solvent company.
• Preference payments Some information about preference payments and how they can affect a company that has gone into liquidation.
• Voluntary Liquidation Basic information about voluntary liquidation. What it is and how it works.
• What is a liquidator? And what do you need to know about how to deal with them? What is a liquidator? What do they do and how do they work?

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