Insolvency is the end of a company’s debt, either voluntary or involuntary. The debts of a business or individual are cleared after they enter insolvency proceedings and repay their debts over time. People can be creditors of a company during its insolvency and this usually means that they will receive some proportionate share of what has been recovered from the failed firm. This situation can be helped if one decides to hire an insolvency firm in Australia.
Creditors work out on how to share assets. The assets are liquidated, with any remaining funds coming back to creditors. It is important that any excess funds not return to the owners in full but instead go to third parties who contributed towards helping with restructuring. The first thing you might want to look into is having a personal insolvency agreement in Australia.
What Are The Consequences Of Bankruptcy?
- Viability
Most companies in financial distress will be able to survive a bankruptcy filing. The company is not written off completely but continues as a going concern and can be put back on the road to recovery. Insolvency firms in Australia can assure you get all the legal rights possible after filing a claim.
- Liquidation
If there are assets available after the insolvency, they will be separated from those that have no value and sold off to generate funds for creditors. In this way, all creditors receive an equal distribution of any remaining assets after liquidation. This also applies to property insolvency.
- Bankruptcy Discontinuance
According to insolvency experts, in certain cases (e.g. in relation to the insolvency of a charity), a company may be able to discontinue its activities and continue as a going concern. However, it may need to re-establish itself from scratch and refocus itself on its mission.
What Are The Various Types Of Insolvency?
- Receivership
A receiver is a person appointed to collect debts and sell assets of a business that has gone into receivership. A receiver operates on behalf of the creditors, usually with the aim of maximizing the return they receive from the assets recovered. A receiver may be an individual or an official appointed by a court or government agency. Hiring an insolvency firm in Australia can help you figure out the whole ordeal with how your receiver will function on your behalf.
- Voluntary Liquidation
Voluntary liquidation is when the members of a firm decide to voluntarily wind up the business and dissolve the company. A solvent voluntary liquidation is when a firm is closed as a going concern and its assets are sold off with the intention of maximising return to creditors. A company usually intends to carry out a solvent voluntary liquidation if it has sufficient assets to meet its liabilities, which will often be true for smaller firms. The process can be initiated by members of the firm or by creditors outside of the business who have debt claims against it. Creditors may wish to force liquidation if they have been unable to obtain payments from their debtor or have not received enough returns from debtors who are in financial distress.
- Discontinuance
A company may decide to discontinue its operations and lay off its staff if it considers it impossible for business to continue. A discontinuance is often the option chosen by a firm that is either no longer able to pay its debts or is simply not focused on generating sales or making money in the future. Under full discharge, the legal obligations of a company cease at the moment of discontinuance and there are often no future legal consequences from doing so. However, creditors can continue to be owed money in the form of wages still due to employees, for example. A firm that chooses this option will usually attempt to remain solvent until its operations have been wound down properly.
How To Claim For Insolvency In Australia?
For a person or a company to make an insolvency claim in Australia, they must be able to prove that they have exceeded their liabilities and are now unable to meet their financial commitments. Other factors that may disqualify a person or company from an insolvency claim are that the debtor does not have any creditors or enough assets for liquidation. The claim is for the debtor to arrange for a debenture. A debenture is a contract signed between the debtor and creditor, which states the full amount owed by both parties in relation to their insolvency agreement. It also records how much each party will receive upon completion of an insolvency claim. Hiring an insolvency firm in Australia is the best way to go about the whole claim.
Conclusion
The laws on insolvency vary by country. The characteristics of the Australian insolvency regime are in line with International Insolvency Law and include such matters as the mandates for liquidation, the powers of directors of a company, simplifying administration, and prioritizing creditors’ claims for payment.
Under the current regime, members protected from personal liability are directors, officers, and employees; where there is no arrangement in place to protect them from personal liability prior to entering into an insolvency agreement (for example, in some jurisdictions), they will be liable for their acts under Section 253(1)(b) of the Corporations Act 2001 (Cth).
