Are you thinking about insolvency? Are you worried about the financial burden or how your business will restructure?
Careful consideration is required when a company is considering liquidation or going through receivership. Clifford Gouldson can provide all the necessary information to make an informed decision about insolvency.
We ensure that the process of insolvency is as painless as possible, maximising your assets and ensuring that you and your stakeholders get the best possible outcome. We ensure that practical solutions are a number one priority.
We have extensive knowledge regarding:
- duties and liabilities for a director
- debt collection
- voluntary administrations
A company is insolvent if it cannot pay its debts as and when they are due and payable. If your company is experiencing financial difficulties, or you are owed money by a company you believe may be insolvent, there are a number of issues to consider.
Creditor’s Statutory Demand
A Creditor’s Statutory Demand (CSD) is a time and cost-effective method of pursuing debts owed to a creditor by a company which are not in dispute and are due and payable. It is a formal demand under Section 459E of the Corporations Act 2001 (Cth) and can be made by creditors who are owed at least $2,000 by the company. It can be a single debt, or multiple debts, but the total due and payable must be at least $2,000.**
Once a company is served with a CSD, within 21 days** it must either, make full payment, negotiate settlement of the debt either by compromise or payment arrangement, or apply to set the CSD aside. If a company fails to elect any of the above within 21 days** then it will be deemed to be insolvent and the creditor will be eligible to commence a winding up application against it within 3 months of the expiry of the 21 days** allowed. If there is no genuine dispute about the debt and a company debtor intends to keep trading, then a CSD may be the most suitable debt recovery tool to force that company to pay up.
**Note: In the current COVID-19 climate, the government has raised the minimum threshold for CSDs to at least $20,000 and response time to 6 months until 31 December 2020
Winding Up Application
A winding up application can be made by a number of parties affected by a company’s insolvency:
- the company itself;
- liquidator or provisional liquidator of the company;
- ASIC; or
- an agency prescribed by the Corporation Regulations (i.e. Australian Prudential Regulation Authority (APRA)).
Pursuant to section 459C(2) of the Corporations Act 2001 (Qld), an application to wind up a company in insolvency must be done within 3 months of the date that a company is presumed to be insolvent.
If a winding up application in successful, the Court will make an order appointing a liquidator nominated by the creditor who applied to wind up the company.
Voluntary Administration (VA) is a corporate insolvency process which is aimed at providing better returns for a company’s creditors and members as opposed to if a company immediately entered into liquidation.
With the help of an independent insolvency practitioner (Voluntary Administrator), VA allows the company to prepare a proposal which would give the best return to stakeholders and reduces the risk of secured creditors pursuing the secured assets of the company. This is because the Voluntary Administrator can effectively deal with pressure from creditors by applying extended insolvency knowledge.
At the end of the VA, there are two usual outcomes for the company:
- It enters into a Deed of Company Arrangement with its creditors, which is a legally binding agreement detailing how the company’s affairs will be dealt with moving forward; or
- It is placed into liquidation.
Liquidation is a corporate insolvency process whereby a liquidator is appointed to realise a company’s assets, distribute them among its creditors, conduct investigations as to the underlying reasons behind the company’s insolvency and wind up the company’s affairs.
There are two ways a company can enter into liquidation:
- Creditors’ Voluntary Liquidation, which occurs when the company’s members determine that the company is either already insolvent, or likely to become insolvent, and resolve that the company be wound up; or
- Court Liquidation, which occurs by way of a winding up application usually made a creditor of the company.
Receivership is when a person is appointed as a Receiver to realise a debtor company’s assets and distribute funds accordingly. There are two circumstances where a receivership may occur:
- a lender of the debtor who has security over a certain asset/s (i.e. secured creditor) seeks to recover a loan; or
- an interested party (i.e. director, shareholder, investor etc.) makes a Court application.
Once a Receiver has realised the relevant assets and performed all required receivership duties, the receivership ends.
You can find out more on these pages:
- Secured vs Unsecured Creditors
- Director Duties and Liabilities
- Voidable Transactions / Unfair Preference Claims
- Public Examinations
If you would like tailored, expert legal advice regarding next steps, contact a member of our Litigation + Dispute Resolution team.