A company is considered insolvent if it is unable to pay its debts when and as they fall due. Corporate insolvency applies even to companies who are able to make these payments but are using credit to do so.
Corporate Insolvency Procedure 1: Voluntary Administration
Voluntary Administration is a corporate insolvency procedure where an Administrator is appointed to investigate the company’s financial affairs and determine what the next best course of action should be. The options are:
- The company should enter into a deed of company arrangement; or
- The company should enter into liquidation; or
- The company should be returned to the directors.
A company that has entered into Voluntary Administration can still continue to trade. It gives the company’s director a chance to settle debts and restructure its affairs through a deed of company arrangement.
Corporate Insolvency Procedure 2: Liquidation
Another corporate insolvency procedure for companies experiencing financial distress is liquidation. Liquidation refers to the winding up of a company’s affairs and all operations are stopped.
There are two types of liquidation:
- Creditors Voluntary Liquidation
- Involuntary Court Liquidation
The difference between these two methods is that the former means that director has willingly appointed a Liquidator for their company while the latter is when there is a court order that requests the closing of the business and a Liquidator of the court’s choosing is appointed.
Corporate Insolvency Procedure 3: Receivership
A Receiver is appointed to a company by a secured creditor who holds security over some of the company’s assets. Their duty is to the secured creditor, and they aim to ensure that their debt is repaid.
A company may still continue to trade even if it has entered into Receivership.
If you would like more information on these corporate insolvency procedures, then please contact Insolvency Services Australia. ISA runs a toll-free 24/7 hotline to give you FREE and professional corporate insolvency advice whenever you need it. Give us a call on 1800 003 883 now.