In this blog we will pick up where we left off in part one of the Insolvency Legal FAQs. If you have not read part 1, we advise you to go and start with that first.
4. What are the options for a company that has been declared insolvent?
If a company is found to be insolvent, one of the following paths may be taken:
- Voluntary administration
Liquidation is the process by which a company’s assets are realised and their value assessed. These are then monetised and the funds are used to reimburse the company’s creditors. What follows is the closure of the business and deregistration of the company.
Voluntary administration involves the instatement of a voluntary administrator, either by the company directors or by a secured creditor, to investigate the history and records of the company and advise the creditors on the best way forward. The creditors could then decide to liquidate the company, fully return it to its directors, or allow for the company to continue running as by the terms agreed upon in a Deed of Company Agreement (DOCA).
5. What is the difference between insolvency and bankruptcy?
While the term “insolvency” is applied both to a company and an individual who cannot pay debt when it is due, bankruptcy is only applicable to an individual. In a nutshell, bankruptcy is a state of financial disability for three years or more (as the period of bankruptcy can be extended). A court declares bankruptcy against someone that owes a creditor more than $5000, and resultantly, the estate and all other assets of the individual are transferred and distributed amongst his/her creditors.
One can also admit themselves to bankruptcy if, as an insolvent debtor, they wish to seek relief from their creditors. Other options to consider, in the case of personal insolvency, include debt agreements and personal insolvency agreements.
6. What are the consequences of personal and company insolvency?
Personal insolvency may result in the reacquisition of the individual’s estate and belongings, such as motor vehicles and personal property by his/her trustee. The declaration of bankruptcy also permanently mars one’s credit rating. Some countries may restrict an insolvent’s travel out of the country during the bankruptcy period.
Company insolvency usually has further reaching effects as all the employees are typically affected by the subsequent unemployment. Directors may, additionally, be fined, lose their assets, and even face jail time, depending on the circumstances leading to insolvency.
Insolvency is a case of financial crisis, and everything possible should be done to avoid it. This includes making sure that all your debtors have paid you what is due as defaulting debtors are usually a major cause of insolvency. You can hire a debt collection agency if you want your debt collected efficiently and professionally. If you feel that you’re at risk of personal or company insolvency, please don’t hesitate in contacting Boston Commercial Services on 1300 668 699 for professional advice and services.