Insolvency & Restructuring

The main types of corporate insolvency processes are voluntary administration, liquidation, and receivership. Voluntary administration provides time for corporate restructuring or debt negotiations. Liquidation involves winding up the company’s operations and distributing assets to creditors. Receivership allows secured creditors to appoint a receiver to recover debts from other companies.

A bankruptcy trustee is a person or entity appointed to oversee a personal bankruptcy case. They assess assets, investigate financial matters, recover funds, and distribute proceeds to creditors. A trustee also has the authority to address voidable transactions and other insolvency disputes to protect creditors’ interests.

Typically, personal bankruptcy lasts three years from the filing date, although it may extend in certain cases. During this time, bankrupt individuals must follow specific obligations and may face limitations on managing finances and securing credit.

Most unsecured debts, like credit cards and personal loans, are discharged at the end of bankruptcy, providing a fresh start. However, some debts—such as child support and student loans—are not discharged and remain payable even after bankruptcy.

Voluntary administration is a corporate restructure option where an independent administrator temporarily takes control, assessing whether restructuring or other effective solutions can resolve the company’s financial challenges. This process is aimed at protecting creditors’ interests and preserving assets if possible.

Liquidation is the formal winding up of a company, during which liquidators sell the company’s assets to repay creditors. Liquidation usually leads to the permanent closure of the business and can be voluntary or court-ordered. Insolvency practitioners and insolvency lawyers manage this legal process to achieve fair outcomes for all parties involved.

Voidable transactions are payments or transfers made by an insolvent company that may unfairly favour one creditor over others. Liquidators or administrators can reverse these transactions to increase the funds available for all creditors. Common examples include unfair preferences, uncommercial transactions, creditor-defeating dispositions, and transactions entered into to avoid obligations. Identifying voidable transactions is a key part of insolvency litigation and debt recovery.

Under insolvency laws in Australia, directors are obligated to prevent insolvent trading. Personal liability can apply if they incur debts while the company is unable to pay. Directors can reduce personal liability by obtaining legal advice early and acting in the company’s interests.

A receiver is appointed by secured creditors to manage or sell a company’s assets to recover owed funds. Unlike liquidation, receivership focuses on satisfying secured creditors rather than all debts. Experienced insolvency lawyers or insolvency practitioners often assist in this area.

Corporate restructuring is a strategy to reorganise a business’s operations, finances, or assets. This may include renegotiating debts, downsizing, or selling non-core assets. Often conducted during voluntary administration, restructuring insolvency is intended to restore the company to a stable financial position.

Certain assets are protected, including essential household items, tools for earning income (up to a specific value), a vehicle within certain value limits, and superannuation. Luxury items or valuable real estate, however, may be sold to satisfy debts.

Traveling overseas while bankrupt requires permission from the bankruptcy trustee. Failing to seek permission may result in penalties or an extension of the bankruptcy period.

Bankruptcy remains on your credit file for five years from the filing date or two years from discharge, whichever is later, which can make obtaining credit challenging during and after bankruptcy.

A personal insolvency agreement (PIA) is a legally binding arrangement between an individual and their creditors to repay debts without full bankruptcy. A PIA often involves selling assets or making payments over time, providing more flexibility than bankruptcy.

Debt agreements are an alternative to personal bankruptcy for individuals with limited debt and income. These agreements are legally binding and involve repayment terms that relieve creditor pressure, though they do affect one’s credit history.

A statutory demand is a formal request for payment, and failure to respond within 21 days may lead to court action to wind up the company. If you dispute the debt, it’s critical to seek legal advice immediately, as you may need to file an application to set aside the demand within strict timeframes. Other options include negotiating terms or arranging payment, but acting quickly is essential to protect your company.

Directors are generally not liable for company debts, but there are important exceptions. You may be personally liable if you breach your duties, such as trading while insolvent or failing to meet tax obligations. The ATO can issue Director Penalty Notices (DPNs) for unpaid PAYG withholding, GST, and superannuation, making directors personally responsible for those amounts. Personal guarantees signed by directors also create direct liability. Seeking legal advice early is critical to manage these risks and respond within strict timeframes.

Secured creditors hold a claim to specific assets of the debtor, giving them priority in recovering debts. Unsecured creditors are paid after secured ones and often receive less in the event of insolvency.

During insolvency, suppliers may halt delivery, and customers may withhold payment. In voluntary administration, an administrator will decide whether to continue, assign, or end contracts based on the company’s interests.

An unfair preference occurs when an insolvent company pays one creditor ahead of others shortly before liquidation. The liquidator may recover these payments to ensure equitable distribution among all creditors.

In liquidation, employees are considered priority creditors for unpaid wages, leave entitlements, and superannuation. The Fair Entitlements Guarantee (FEG) scheme provides assistance if the company lacks sufficient funds.

Yes, bankrupt individuals can start a business, but they must disclose their bankruptcy status if trading under a name other than their own. However, you cannot be a director or manager of a company while bankrupt, and securing credit for the business may also be challenging. It’s important to understand these restrictions to avoid breaching bankruptcy laws.

During bankruptcy, personal tax obligations continue, but refunds may go to the bankruptcy trustee. For companies in liquidation, any outstanding tax debts are addressed by the liquidator. Directors should also be aware of Director Penalty Notices (DPNs), which can make them personally liable for unpaid PAYG withholding, GST, and superannuation even if the company enters liquidation. Seeking legal advice early is essential to manage these risks and respond within strict timeframes.

Liquidation ends when the liquidator has sold all assets, settled claims, and submitted final reports to ASIC. The company is then deregistered and ceases to exist as a legal entity.

Upon discharge, most restrictions are lifted, though the bankruptcy remains on credit records for up to five years. Individuals may resume financial activities, though credit providers may assess their history.

Yes, voluntary administration offers a company the chance to restructure under a Deed of Company Arrangement (DOCA), allowing it to resume normal operations if the financial issues are resolved.