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Frequently Asked Question

Insolvency FAQ

Insolvency and liquidation are not the same, but they are connected. Insolvency refers to a situation where a company or an individual is unable to meet financial obligations. Liquidation, however, is a potential strategy to deal with insolvency, and involves converting a company's assets into cash to repay creditors. It's a means of orderly winding down the company's operations.
In Australia, insolvency is handled through a systematic and fair process supervised by qualified professionals known as liquidators, trustees, or administrators. They take charge of the debtor's assets, manage financial affairs, and distribute assets among creditors in a manner that aims to provide the most equitable outcome for all parties involved.
Applying for insolvency in Australia is a structured process. It's recommended to consult an insolvency professional or a lawyer who can provide guidance on the most suitable course of action. If you're a company director, you can appoint a voluntary administrator or liquidator, while individuals can file for bankruptcy through the Australian Financial Security Authority.
The duration of insolvency can vary based on several factors. Generally, personal bankruptcy lasts three years, but can be extended under certain conditions. For companies, the timeline is dictated by the complexity of the case, available assets, number of creditors, and any legal complications that might arise.

Answer: Companies can potentially avoid insolvency through sound financial management, enhancing cash flow, cutting unnecessary costs, and addressing any financial difficulties promptly. Seeking advice from financial professionals at an early stage can also be very beneficial. Book a free consultation here

You can determine a company's insolvency status by checking the Australian Securities and Investments Commission (ASIC) website or consulting the National Personal Insolvency Index (NPII). There may also be clear signs such as the company being unable to meet its debts or the appointment of a liquidator, receiver, or voluntary administrator.

Insolvency procedures in Australia include liquidation, voluntary administration, and receivership for companies, and bankruptcy for individuals. Additionally, there are debt agreements and personal insolvency agreements for individuals seeking alternatives to bankruptcy.

Common causes of insolvency include cash flow issues, insufficient financial control, insufficient start-up capital, strategic management issues, and external factors such as economic downturns or increased competition. Understanding these causes can help businesses anticipate and prevent potential financial problems.
While insolvency is a challenging situation, it's not entirely negative. Insolvency proceedings aim to protect both debtors and creditors. They help ensure fair debt repayment to creditors, and offer a chance for the debtor to reset financially, either through restructuring or by providing a clean slate post-liquidation or bankruptcy.

The initial steps in addressing insolvency involve consulting with an insolvency professional or lawyer to understand available options. This professional advice can guide the debtor towards the most appropriate resolution, such as voluntary administration, liquidation, or receivership for companies, or bankruptcy for individuals. [Book a free consultation]

Yes, a company can indeed survive insolvency. Voluntary administration, for instance, can facilitate company restructuring to allow for continued operation while repaying debts. The chance of survival depends on various factors, such as the company's financial health, reasons for insolvency, and the effectiveness of the restructuring strategy.
Insolvency poses risks to a business owner, including potential loss of their investment and potential damage to their reputation. However, if the owner has provided personal guarantees for business debts, facing these challenges can also lead to new financial management strategies and fresh business perspectives.
An insolvency fee refers to the cost associated with handling the insolvency process, which includes the remuneration for the appointed insolvency practitioner and related legal expenses. It's a necessary expense that ensures the efficient and fair management of the insolvency process.
The expenses of insolvency proceedings are generally covered by the assets of the debtor, be it an individual or company. If the assets are insufficient, the insolvency practitioner may not receive full payment for their services. Sometimes, creditors may agree to contribute towards the cost, viewing it as a necessary step towards recovering their owed money.

Restructuring FAQ

A business restructure involves a significant modification of a company's business model, organizational structure, or financial structure. It is typically pursued to address financial challenges, improve efficiency, or position the company for future growth. The aim of restructuring is often to streamline operations, reduce costs, or make the business more market-adaptable.
In Australia, the small business restructuring process provides a simplified pathway to restructuring debts and operations. It involves drafting a debt restructuring plan with the help of a small business restructuring practitioner. This plan is then presented to creditors for approval. If the majority (in value) of creditors approve, the plan is put into place, allowing the business to continue operations while repaying its debts in a manageable way.
Both large and small businesses can engage in restructuring, regardless of their industry. Specific eligibility criteria, particularly for formal restructuring processes, may vary by country and the type of restructuring involved. In Australia, to access the small business restructuring process, a business needs to have liabilities of less than $1 million.
Corporate restructuring can be categorized into operational and financial restructuring. Operational restructuring involves changes in the company's processes, management, or strategy, such as merging departments or outsourcing certain functions. Financial restructuring involves changes in the capital structure of the company, such as debt consolidation, renegotiating loan terms, or issuing new shares.
Examples of restructuring include a merger or acquisition, selling or spinning off a division of the company, downsizing or rightsizing the workforce, changing the management structure, consolidating or renegotiating debts, or issuing new equity to change the company's capital structure.
While restructuring can offer several benefits, it also has potential risks or disadvantages. It can lead to short-term disruption in the business and may impact employee morale due to uncertainty or changes. It may also incur costs, distract management from their regular duties, or potentially damage relationships with suppliers, customers, or creditors if not managed well.
Restructuring offers numerous potential benefits. It can improve a company's financial health by reducing debt and expenses. It can also enhance operational efficiency, competitiveness, and adaptability. Furthermore, restructuring can position a company for growth by aligning its structure and operations more closely with its strategic goals. It provides a chance for the business to reassess, re-strategize, and rebuild for a stronger future.

Voluntary Administration FAQ

The objective of a Voluntary Administration is to allow the company to continue its operations and trade. Whereas a Liquidation is the end of a business and all its affairs.
Less than 30% of all companies that enter a Voluntary Administration are successful. This is due to the mismanagement of the business prior and during the Voluntary Administration and the lack of knowledge of how it is done. With the right guidance and professional support, a Voluntary Administration can be an excellent tool to get a business back on track.
A Voluntary Administration will place a hold on all recovery action taken by creditors of the business including personal guarantees against the directors. The only exception to this would be a lender who has a mortgage over the assets of the business.
Directors can attract Personal liability for company debts from the severe insolvent trading provisions of the Corporations Act and the tough Director Penalty Notices (DPNs) issued by the Australian Taxation Office. DPNs require a company to pay various tax liabilities within 21 days or the directors will become personally liable for the debt, unless a Voluntary Administrator or liquidator is appointed. Therefore, one of the strengths of the voluntary administration process is that it limits director’s personal liability.
As a Voluntary Administration is all about allowing the company to continue its operations and not fall into Liquidation, it would be advised to continue to bring in more work to the business.
A Deed of Company Arrangement, often called a DOCA, is essentially the “deal” that is proposed to a company’s creditors in a Voluntary Administration. The aim of a DOCA is to maximise the chances of a company continuing, or to provide a better return for creditors than an immediate winding up, or liquidation, of the company.
The assets of the company will be valued in both outcomes of a Liquidation and Voluntary Administration. In the outcome of a DOCA, the assets will stay within the company as they were originally. Unless prior arrangement is made by the director and or Administrator.
The Australian Taxation Office will be treated as any other unsecured creditor. They may come across more aggressive but that would be due to their knowledge of this process. They can however take personal action against a director by way of debts including PAYG and Superannuation.
Payment of dividends to creditors under a DOCA is the same as the structure of payment of a dividend in a liquidation. So, the Deed Administrator will call for Proofs of Debt from creditors, admit and reject claims and then pay a dividend. All the timing and processes are set out in the Corporations Law. The order in which creditor claims are paid depends on the terms of the DOCA. Usually, the DOCA proposal is for creditor claims to be paid in the same priority as in a liquidation. Other times, a different priority is proposed. But, the DOCA must ensure employee entitlements are paid in priority to other unsecured creditors unless eligible employees have agreed to vary their priority.
When the terms of the DOCA are met and are satisfied by the company, its director(s) and the administrator, the DOCA will end and the company will revert to its original trading abilities.

Liquidation FAQ

Every one of our clients are different, there are no two companies identical in character, and so our process is different for everyone. However, we give each new matter an initial timeframe of four working weeks. This can be extended or shortened depending on the client and their requirements.
In most cases the answer would be no. However, you will need to be aware of all debts that you may have personally guaranteed. This may include some creditors, loans, overdrafts and in some cases PAYG and Super. We will help you work out what the liability, if any, is tied back to your personally.
Phoenix Companies are used to transfer assets illegally and to avoid paying creditors. If a sale of assets is not carried out correctly – and legally – then the directors could have problems in the future with a liquidator, ASIC and the ATO.
Once a company enters into liquidation, the ownership of that business and its affairs fall to the liquidator. Unless you have personally guarantees with your creditors, you can direct all correspondence to the liquidator.
Yes. If you intend on using the assets of a company that is about to enter liquidation you must purchase them for a fair price and sale agreement. If you do not then you may be participating in illegal phoenix activities.
Yes of course, provided it is purchased out of the company that is about to enter liquidation.
Again, no two business are the same and this would show in the work that needs to be undertaken for us to successfully work with them. However, a tailored business solution document will be provided for you which will include in it a measured project cost.
Yes. There is no automatic prohibition on a director of a company that enters liquidation holding another, or many other, directorships. However, the Corporations Act gives ASIC the power to ban someone from being a director for a period of up to five years if they have been a director of two or more companies that entered liquidation within the last seven years
Yes, this will be recorded on your credit file, but not as a severe record. Credit Reporting Agencies keep track of companies that enter liquidation (for insolvent companies) and the names of the directors of those companies. However, a liquidation is not a bankruptcy. Or even a personal judgement. A company is a separate legal entity to a director and the company’s directors are not automatically liable for a company’s debts. A personal bankruptcy or a personal judgement is a serious black mark on your credit rating – being a director of a company that went into liquidation is a less serious mark.
The liquidation process of a company really does not have any time limit. There is a whole list of elements that a liquidator and their team can take into consideration. Part of our service to our clients to work with the liquidator and their team on your behalf, allowing you to get on with your life.

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Copyright © 2023
AVA Advisory Group Ptd  Ltd ACN 672 192 228 
Privacy Policy | Terms & Condition
AFCA: 103087

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