Consequences of Insolvency to a Business

Consequences of Insolvency to a Business

Insolvency refers to a state of financial distress which happens when a business cannot pay its debts. A limited company that is insolvent may enter into liquidation, whereas a partnership or sole trader may lose their personal assets, resulting in bankruptcy.


Consequences to Partnerships and Sole Traders

Partners and sole traders that are insolvent may have their personal assets sold off to pay the debts of the business. These debts may include bills, taxes, loans, unpaid rent, credit cards, and overdrawn bank accounts.


Business owners who become personally bankrupt will also have certain restrictions placed on them. For example:


• It restricts you from traveling overseas.
When you are bankrupt, it would be an offense for you to travel overseas without written consent. You must request permission from your trustee to travel outside the county.


• It affects your ability to acquire credit in the future.
When you apply for credit or funds in future, you must first inform your credit or financial provider about your bankruptcy.


If you would like to learn more about insolvency or need help regarding your business’s financial state, please speak to Insolvency Services Australia for free and confidential advice on our 24/7 toll-free hotline on 1800 003 883.


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