Corporate Insolvency
A company is deemed to be insolvent when it reaches a point where it either:
a) cannot pay its debts as and when they fall due, or
b) has an excess of liabilities over assets
At this point the Directors of the company are effectively under a legal obligation to take action to rectify the situation, e.g. obtain a cash injection from shareholders, or to place the company into the hands of an external administrator.
In addition to the above if a company is showing signs of being in financial difficulty, its Shareholders, Creditors or the Court can take action to place the company under the control of an external administrator.
In essence these can be grouped into three broad categories – Administration, Receivership and Liquidation.
Voluntary Administration / Deed of Company Arrangement
- aimed at returning the company to its operational status, and
- to the control of the Directors with an appropriate return to Creditors.
- turnaround strategies
Receivership
- Receiver can either continue to trade-on the business or
- realise some or all of the company’s assets to repay the Secured Creditor
Liquidation
- Liquidator to investigate and report to Creditors the company’s affairs
- Registered Liquidator to collect, protect and realise the company’s assets
- enquire into the failure of the company and report to ASIC
- finalisation of the affairs of the Company
- distribution to Creditors
Different types of Liquidation:
-
Creditors Voluntary Liquidation
-
Official Liquidation
-
Provisional Liquidation