In relation to insolvency on the Sunshine Coast, there are several types of insolvency appointments that can be made in relation to a company or a person that/who is experiencing financial difficulty.
These insolvency appointments are typically made by the directors of the company, or by a creditor of the company, and are intended to help the company restructure its debts or wind up its affairs in an orderly and organised manner.
The main types of insolvency on the Sunshine Coast are (inter alia):
- Bankruptcy: This is a process in which an individual (not a company) is declared bankrupt, usually as a result of being unable to pay their debts when the debts become due and payable. In Australia, bankruptcy is administered by the Australian Financial Security Authority (AFSA).
- Deed of Company Arrangement (or DOCA): A DOCA is a formal agreement between the insolvent company and its creditors, which sets out a plan for how the company will pay its debts and restructure. A deed of company arrangement (DOCA) is typically proposed by the company’s directors (with support from the administrator) and must be approved by the creditors.
- Liquidation: This is a process in which a liquidator is appointed to wind up the affairs of the company and distribute its assets to its creditors. Liquidation may be voluntary also called a Creditors Voluntary Liquidation (CVL) (if the company’s directors initiate the process) or compulsory (if a creditor applies to the Supreme or Federal Courts to have the company wound up).
- Receivership: This is a process in which a receiver is appointed to manage the company’s assets and affairs. The receiver is usually appointed by a secured creditor of the company, and their primary role is to recover the creditor’s debt by selling the company’s assets.
- Voluntary Administration (or VA): This is a process in which an independent person, known as a Administrator, is appointed to manage the affairs of the company. The voluntary administrator assesses the company’s financial position and develops a proposal for how to deal with the company’s debts.
We will explain these in more detail below.
Thinking about Insolvency on the Sunshine Coast? Be referred to the best insolvency lawyers on the Sunshine Coast
What is Bankruptcy?
Bankruptcy is a legal process that is administered by the Australian Financial Security Authority (AFSA). It is a process that is available to individuals who are unable to pay their debts as and when they become due and payable, and are seeking relief from their creditors.
When an individual is declared bankrupt, their assets are generally sold to pay off their debts, their income is assessed in relation to income contributions, and they are released from their debts (with some exceptions).
To be declared bankrupt in Australia, an individual must:
- Owe at least $10,000 in unsecured debts that they are unable to pay.
- Be an Australian resident or be physically present in Australia.
- Be insolvent (unable to pay their debts as and when they fall due).
- Have committed an act of bankruptcy.
An individual can declare themselves bankrupt by filing a debtor’s petition with AFSA, or a creditor can apply to the court to have the individual declared bankrupt. Once an individual is declared bankrupt, their assets become the property of the bankruptcy trustee, who is responsible for selling the assets and distributing the proceeds to the individual’s creditors.
Bankruptcy can also have some bad consequences, such as affecting an individual’s ability to obtain credit or hold certain types of licenses (QBCC building licenses for example), so it is important to carefully consider all of the options available before taking this step. It may be possible to negotiate a repayment plan with creditors, or to seek other forms of assistance such as a debt agreement or personal insolvency agreement.
What is liquidation?
Liquidation is the process of winding up a company’s affairs and distributing its assets to its creditors and ultimately its shareholders (if any). This process is typically initiated when a company is unable to pay its debts as and when they become due and payable, or has otherwise become insolvent.
The process of liquidation in Australia is governed by the Corporations Act 2001 (Cth) and is generally carried out by a licensed insolvency practitioner, who is appointed as the liquidator of the company.
The liquidator is responsible for selling the company’s assets, including real estate (if any), plant and equipment, and inventory, and using the proceeds to pay off the company’s debts. Any remaining assets (if any) are then distributed to the company’s shareholders.
There are two types of liquidation in Australia: creditor’s voluntary liquidation (CVL), which is initiated by the company’s directors or shareholders, and compulsory liquidation, which is initiated by a creditor of the company. In both cases, the liquidator is responsible for ensuring that the liquidation is conducted in an orderly and fair manner, and that the rights of the company’s creditors and shareholders are protected.
What is Receivership?
Receivership is a legal process that involves the appointment of an independent third party, known as a receiver, to manage the assets of a company that is financially distressed or insolvent. The receiver is typically appointed by a secured creditor, such as a bank or other security holder, to protect and realize the value of its secured asset.
The receiver’s primary role is to take possession and control of the company’s secured assets, and to manage and sell those assets in order to repay the secured creditor. The receiver may also be responsible for ensuring that the company’s employees are paid, and for paying any other debts or liabilities that the company may have.
Receivership is a serious step that can have significant consequences for a company and its stakeholders. It can result in the sale or liquidation of the company’s assets and may lead to the company being wound up or dissolved. If you are a director or shareholder of a company that is facing receivership, it is important to seek legal advice as soon as possible to understand your rights and obligations.
What is voluntary administration?
Voluntary administration is a process that allows a company experiencing financial difficulties to appoint a registered liquidator (called an “administrator”) to manage its affairs, business, and property. The purpose of the process is to allow the company to continue trading while the administrator assesses the company’s financial position and options for its future.
Voluntary administration is an alternative to liquidation, which involves the sale of a company’s assets to pay its debts. Voluntary administration can sometimes lead to the company being restructured, returning to profitability, and being handed back to the directors, while liquidation generally results in the company being wound up, deregistered, and ceasing to exist.
The voluntary administration process is initiated by the company’s directors, who must make a statutory declaration that the company is insolvent or likely to become insolvent. The administrator is then appointed by the company’s creditors, who must vote to accept the administrator’s appointment at a meeting called the “first meeting of creditors”.
The administrator’s primary role is to assess the company’s financial position and options for its future (if any), and to report back to the creditors. The administrator may also take steps to try to improve the company’s financial position, such as by negotiating with creditors or selling assets.
Ultimately, the creditors will decide on the company’s future, and may choose to accept a proposal from the administrator to restructure the company or may opt to place the company into liquidation.
What is a Deed of Company Arrangement (DOCA)?
A Deed of Company Arrangement (DOCA) is a formal arrangement between a company and its creditors that is used as a tool for restructuring the company’s financial affairs. It is often used as an alternative to liquidation and is typically used when the company is facing short-term financial difficulties but is otherwise viable and has a good chance of being able to recover with the right restructuring plan. This is sometimes called temporary illiquidity rather than insolvency.
A DOCA is typically used as part of the administration process under the Corporations Act 2001 (Cth). When a company enters into administration, an Administrator is appointed to manage the company’s affairs and assess its financial position. The administrator’s role is to try to rescue the company, either by restructuring its debts and liabilities or by selling the company or its assets. If the administrator believes that the company can be rescued through a DOCA, they will prepare a proposal for a DOCA and present it to the company’s creditors for approval.
If the creditors vote in favour of the DOCA, the administrator will then execute the DOCA on behalf of the company. The DOCA sets out the terms of the restructuring, including how the company’s debts and liabilities will be managed, how the company will be funded, and how the company’s assets will be used to pay off its creditors. The DOCA may also provide for the appointment of a supervisor to oversee the implementation of the DOCA and ensure that the company complies with its terms.
A DOCA is a flexible and adaptable tool that allows a company to restructure its affairs in a way that is fair and reasonable to all of its creditors. It can provide the company with the time and resources it needs to recover from financial difficulties and emerge as a stronger and more financially stable entity.
How can Insolvency on the Sunshine Coast help?
Insolvency on the Sunshine Coast is a legal term that refers to a situation in which an individual or business/company is unable to pay their debts as they come due. In this situation, the debtor may seek relief through a formal insolvency process, such as bankruptcy, liquidation, or a debt restructuring plan.
Insolvency proceedings can provide debtors with a number of benefits, including:
- A chance to start fresh: An insolvency appointment can provide debtors with a fresh start by allowing them to eliminate or restructure their debts and begin rebuilding their finances.
- Protection from creditors: An insolvency appointment or debt restructuring creates an automatic stay which goes into effect that prohibits creditors from taking any action to collect on the debts. This can provide the debtor with some breathing room to negotiate with creditors and develop a plan to pay off their debts.
- Relief from debt: Depending on the type of insolvency proceeding, a debtor may be able to discharge some or all of their debts. For example, a debtor may be able to have their debts discharged (in full or in part) and be relieved of their obligation to pay them.
It’s important to note that Insolvency on the Sunshine Coast can have significant consequences, including the potential loss of assets, damage to credit, and the loss of licenses needed for work. As such, it’s important for debtors to carefully consider their options and seek professional advice before proceeding with any insolvency proceedings.
Thinking about Insolvency on the Sunshine Coast? Be referred to the best insolvency lawyers on the Sunshine Coast