Bankruptcy – Legal Affairs Lounge https://Legalaffairslounge.com Your Trusted Legal Advisor Wed, 24 Apr 2024 01:06:24 +0000 en-AU hourly 1 https://wordpress.org/?v=6.7.2 https://Legalaffairslounge.com/wp-content/uploads/2024/04/cropped-cropped-crest-law-32x32.png Bankruptcy – Legal Affairs Lounge https://Legalaffairslounge.com 32 32 The Steps for Insolvency for Debtors https://Legalaffairslounge.com/the-steps-for-insolvency-for-debtors/ Fri, 09 Sep 2022 02:21:36 +0000 http://legalaffairslounge.com/?p=7230 The term insolvency describes the situation where an individual or business cannot pay bills when they are due.

Take a look at some of the options and steps involved with the insolvency process if you are a business.

How do you know if you are insolvent?

The signs you are insolvent are:

  • If the number of overdue bills keeps building rather than dropping
  • If the total of your business debts is higher than the value of the assets, you own
  • If your sales figures and profits have been on a downward trend
  • If you don’t have the cash flow to cover your regular expenses
  • Your financial team is continually receiving phone calls and letters of demand from creditors

In some circumstances, multiple creditors may take action against a company that doesn’t repay its debts. This can result in what’s known as compulsory liquidation — and an order is issued by the court as a result of the creditors’ actions.

Otherwise, the company’s directors can start the insolvency process themselves, if they feel they need help to take stock of the situation and bring things under control.

Being insolvent doesn’t necessarily mean the end of the business. The first and most important step is to engage a team of legal professionals who are experienced in insolvency and can guide business directors through the process. Once someone is on board to help with the relevant steps and paperwork, here are the potential steps to move through:

Voluntary Administration

When a company goes into voluntary administration, the directors hand control to external administrators who start investigating financial details and working out how to deal with creditors. These experts are sometimes referred to as insolvency practitioners or receivers.

The company can continue trading during this time but there has to be a formal admission to the Australian Securities and Investments Commission, which will make a note that the company is in administration.

Once the administrators have completed their investigation, there will be a clearer picture of whether it is possible to pay creditors and move forward, or if liquidation is the best next step.

Receivership

If debts can be restructured, payment plans can be arranged and assets sold in order to pay off the creditors, or if the company can be acquired by another entity, it may be possible to get back on track and continue trading.

In these circumstances, a receiver is appointed to oversee the management of assets, potentially restructure the company and help take care of financial obligations.

Liquidation

The insolvency professionals you work with may determine liquidation as the best course of action if there is no way to escape the financial difficulties the business is facing.

Liquidation is also referred to as “winding up”. As part of this, items of value (assets) are sold to help repay debts, the company is closed, and it stops trading.

How to recover from insolvency

Recovering from insolvency is possible and many Australian companies have been able to do so. A positive outcome often depends on taking action sooner rather than later.

To avoid the threat of insolvency, careful financial management and a monetary ‘safety net’ are essential. It makes sense to work with a good accountant so you can be aware of spiralling costs before they are out of control.

Would you like more information about the steps to insolvency, contact Legal Affairs Lounge today to discuss your options.

 

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.

 

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What Happens When a Company Goes into Administration? https://Legalaffairslounge.com/what-happens-when-a-company-goes-into-administration/ Mon, 09 May 2022 23:25:59 +0000 http://legalaffairslounge.com/?p=6882 The whole purpose of operating a company is to make money. However, with so many moving parts and money coming and going at different rates, it can be very easy to end up with an unmanageable amount of debt.

A business that has reached a point where it is experiencing significant financial trouble may have to go into administration. This happens to companies of all sizes every year, often because there are loans that can’t be paid off, suppliers who are owed money or because there is outstanding tax debt. The situation can be due to financial mismanagement or because something unexpected has happened to affect sales (which happened to many businesses during the pandemic).

If you put your business into administration voluntarily, it doesn’t necessarily mean the end of the road, just that someone independent has been brought in to investigate the financial situation in detail and make recommendations about the best way to move forward.

Take a look at the different types of administration and what happens when a company goes into administration.

Voluntary Administration

A company director or the board of a company can instigate the administration process themselves. This usually happens when debts are out of control and it is recognised that support is needed to identify the next best steps.

With voluntary administration, the Director or board will decide to appoint an administrator. The administrator will be brought in to:

  • Meet with creditors (e.g. banks and lenders, suppliers, employees, contractors or the ATO)
  • Analyse financial statements
  • Review existing assets
  • Go through relevant records and documents
  • Prepare a report detailing the options to move forward

From there, the Director/s and board, if there is one, will make a decision to either sell the business, restructure, or liquidate and stop trading.

Involuntary administration

If a company owes a great deal of money to a number of secured creditors, these creditors can file an application in court that proves they are owed money and that the company is not paying its bills.

As part of this, ASIC (the Australian Securities and Investments Commission) must be notified.

After reviewing the case, the court will appoint an administrator. This moves the company’s directors ‘to the side’. They will no longer be able to make decisions relating to the financial matters of the company.

A liquidator will be appointed to itemise the company’s assets and determine their value before they are sold. Assets may include cars, vans, trucks, equipment and machinery, and property.

The resulting cash is used to repay the creditors. Following this, the company will no longer trade.

How to avoid involuntary administration

If your business is ‘solvent’, you are able to pay your bills on time and steadily reduce your debts.

The term ‘insolvent’ describes the opposite.

It makes sense for an insolvent business to go into administration voluntarily because this gives you more flexibility to make plans and recover. If a solution can’t be found to pay outstanding debts, liquidation may be the best answer. However, at least you will know you explored every option with the help of an administrator.

The benefits of going into administration voluntarily are:

  • Directors are protected from legal action
  • You can ‘buy time’ to figure out how to pay your creditors
  • An administrator may be able to identify ways to recover
  • You will be able to negotiate with creditors
  • Your company can continue to trade

One of the first things to do if you are concerned your business is facing insolvency is to reach out to a lawyer who specialises in this area. If you’re on the Legal Affairs , get in touch with our team today.

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice.

 

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Bankruptcy: Five Things you Need to Know https://Legalaffairslounge.com/bankruptcy-five-things-you-need-to-know/ Wed, 30 Mar 2022 23:07:15 +0000 http://legalaffairslounge.com/?p=6827 Things don’t always go according to plan, which the last couple of years have proven for many people.

Sometimes, despite all your best efforts and intentions, your financial situation can spiral out of control, leaving you facing bankruptcy.

If you have significant debt and are considering declaring bankruptcy, here are some quick facts you need to know:

1. Bankruptcy isn’t always the only option

Before you decide to declare bankruptcy, seek financial advice. There are free services available via the National Debt Helpline on 1800 007 007.

You may be able to avoid bankruptcy with a Part IX (9) debt agreement, which will allow you to pay a percentage of your debt over a period of time.

If you are a business owner, there could be the option to restructure your debts so they can be taken care of gradually. A Small Business Restructuring Practitioner (SBRP)  can help you with this process, which has become easier during COVID.

Bankruptcy is not an easy road so make sure you get some advice to rule out every alternative.

2. Bankruptcy has consequences

People declare bankruptcy when they owe a great deal of money and have no way of paying it back.

By declaring bankruptcy, you may think you’ll be able to walk away from your debts. However, there are quite a few steps involved and it’s not quite that simple. For example, once you have formally declared bankruptcy, a Trustee will be appointed to investigate your financial affairs. You can appoint your own or the Australian Financial Services Authority may appoint one for you at the request of the people who you owe money.

The Trustee will help you figure out if you have any assets that can be sold in order to give money to your creditors.

The main consequence of bankruptcy, other than the stress of going through the process, is that your credit rating is affected and it will be very difficult to borrow money for several years. In addition to this, you cannot act as Director of a business or own any assets over a certain value. Your ability to travel overseas may also be limited.

These consequences generally last for a period of three years and one day, although credit reporting agencies may keep records for five years and more. You may find you can’t borrow a significant amount without a guarantor to co-sign on a debt agreement.

3. Not all debts are absolved

Bankruptcy generally clears the following debts:

  • Credit cards
  • Store cards
  • Unsecured business and personal loans
  • Trade creditors
  • Payday loans
  • Utility bills

You cannot walk away from every debt when you are bankrupt. You will still be expected to pay for things including child support, HECS/HELP fees, court fines and your mortgage (your bank will probably arrange to sell your house so you can settle this debt).

4. You can still work and earn money while you’re bankrupt

There’s no time like the present to start fresh. Even though you won’t be able to borrow money while you’re bankrupt, you can still take the necessary steps to support your living requirements.

However, once you reach a certain amount of income (starting from around $54,000), a percentage of the money may be claimed to return to the people and businesses you still owe. This amount will vary depending on your circumstances, for example you will have a higher earning threshold if you are supporting one or more children.

5. A lawyer can help

Bankruptcy is a highly stressful situation for anyone and it doesn’t always happen because of bad habits or mismanagement. Sometimes you can be in debt without realising, or things can go wrong so suddenly that you don’t have time to get in control of your finances.

When you enlist the support of a bankruptcy lawyer, you’ll have the benefit of advice and assistance in all matters related to your personal debt. Pre and post-bankruptcy advice can help you with all or some of the following:

  • Creating and signing debt agreements
  • Guiding you through bankruptcy proceedings
  • Making you aware of your rights and the risks involved with your decisions
  • Sharing advice about bankruptcy notices and how to respond to one
  • Presenting a petition for bankruptcy to the Australian Financial Services Authority (AFSA)
  • Negotiating your debt settlement agreements
  • Sharing advice about your rights and obligations
  • Securing an early release from bankruptcy
  • Defending you against bankruptcy proceedings

If you’re facing bankruptcy but feel unsure about the next best steps, reach out to an experienced bankruptcy lawyer on the Legal Affairs . Legal Affairs Lounge specialise in the following:

  • Bankruptcy legal advice
  • Rights and obligations
  • Early release from bankruptcy
  • Personal insolvency
  • Bankruptcy litigation

Get in touch to find out more.

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