Insolvency and restructuring FAQs
Business insolvency and restructuring can be complex to navigate. Learn more about the process and the most frequently asked questions below.
What is insolvency?
A company or individual is insolvent when unable to pay all of their debts as and when they are due and payable. They can be asset rich but still insolvent if the assets cannot be promptly converted to cash and used to pay outstanding debts.
What is a director's liability for insolvent trading?
If a company is insolvent but continues to incur debts to its creditors, its directors can be held personally liable for those debts in a liquidation of the company. This can happen if the directors are deemed to have been aware of circumstances that would reasonably lead them to suspect insolvency, and yet they allowed the company to continue to incur debt. In instances where insolvent trading is considered dishonest, directors may be subject to criminal proceedings.
What is a creditor?
A creditor is a company or individual that is owed money by a debtor (an entity including individuals or a borrower that owes debt).
What is a creditor's petition?
A creditor's petition is an application by a creditor, usually to the Federal Circuit and Family Court of Australia, seeking for an individual to be declared bankrupt by the court and for a bankruptcy trustee to be appointed to manage the individual's bankrupt estate for the benefit of the creditors.
What is a creditors' voluntary liquidation?
A company that is insolvent may resolve that it be wound up and that a liquidator be appointed to manage and investigate its business, property and affairs. In this process, the liquidator aims to realise the company's assets and make a distribution to creditors in part payment of the debts owed to them by the company.
What is a proof of debt?
Proof of debt is the method by which a creditor of a company or an individual notifies the administrator, liquidator or bankruptcy trustee of the amount of the debt owed to the creditor and how that debt arose. Creditors that lodge a proof of debt are generally entitled to vote on key decisions and to receive a distribution if one becomes available.
How long does a creditor have in order to sue?
Generally, a creditor has six years to commence proceedings to recover a debt that becomes due under a contract. If the debt is payable under a deed, the creditor has 12 years from when the debt becomes due.
What is a deed of company arrangement?
A deed of company arrangement (DOCA) is a document used to contain the terms agreed to between a company, its administrator, and the creditors at the end of a voluntary administration if parties agree to a restructuring of the company's business, property, and affairs, or if there is a plan to compromise creditors' debts.