It goes without saying that the law is a complex language. Indeed, it is so complex, and at times, so incoherent, that the Merriam Webster Dictionary has a specific term for it: ‘legalese’. As the law of insolvency is no exception, this article has compiled some of the most frequently used (and ambiguous) insolvency terms.  

Bankruptcy notice

A bankruptcy notice is a formal demand for payment arising from a final judgement or order. This notice is only available where the debt amounts to $10,000 or more and has existed for no more than six years. 

Deed of company arrangement (‘DOCA’):

A DOCA is a legally binding agreement between a company and its creditors. These Deeds typically arise where a company enters voluntary administration and outlines the use of the company’s and management of its affairs. 

Declaration of Indemnities: 

This is a declaration provided to creditors by either a voluntary administrator (or liquidator) detailing any indemnities the company has provided to the administrator/liquidator to cover any fees or debts they may incur in discharging their duties. Creditors can use this declaration to determine whether they wish to replace the administrator/liquidator. 

Pari Passu: 

Translated from Latin, this phrase means ‘with an equal step’. [1] Put simply, this means that once secured creditors have been paid, the remaining unsecured creditors are entitled to an equal and proportionate share of a company’s liquidated assets. This principle is codified in s 555 of the Corporations Act 2001 (Cth). 

Phoenixing:

Is an illegal practice of creating a new company to continue the business of a liquidated/abandoned company, typically to avoid paying debts. This practice often amounts to a breach of directors’ duties under the Corporations Act 2001 (Cth) and carries severe penalties, including significant fines and imprisonment of up to 15 years. 

‘Winding up’ vs ‘liquidation’ 

These terms are synonymous [2] and refer to the process of an insolvent company being externally administered. Practically, this involves realising the company’s assets, assessing creditor’s claims, and distributing net proceeds to those entitled. [3] This process can be voluntary (initiated by the company’s members or creditors) or involuntary (instigated by a court order). 

Concluding Thoughts:

The above terms are merely a few out of the plethora of legal terms that can often require some deciphering. Whilst this guide is unlikely to result in fluency with ‘legalese’, it is a starting point. Fortunately, for clients, only lawyers need master fluency. 

 

***Assisted by: Kayla Cook***

 

  [1] Goode, Principles of Corporate Insolvency Law, 4th ed, Sweet & Maxwell, 2011.

[2] Mier v FN Management Pty Ltd [2006] 1 Qd R 339.

[3] Longley v Chief Executive, Dept of Environment and Heritage Protection [2018] 3 Qd R 459.