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Financial issues can hit hard

You may operate a business that can’t pay its bills.

Or you may be owed money, goods or services by another business. Whatever your situation, financial issues can have a significant impact on your business, your personal life and your wellbeing.

What is insolvency?

At its most basic, a company is insolvent if it can’t pay its debts by the due dates.

Insolvent trading is against the law. A company must not continue to trade and incur new debts if it can’t pay existing debts. If it does, the directors may face significant penalties, including being personally responsible for the company’s debts and, in the worst-case scenario, fines or imprisonment. If a company is insolvent, there are various options available.

Voluntary administration

The company directors appoint an administrator to try and salvage its financial position. This may include negotiating with creditors and working out how to reduce the debt.

Voluntary liquidation of a company

The directors or shareholders decide to bring the company to an end by distributing any assets and finalising its affairs, including payment of creditors where possible.

Winding up

The creditors apply to a court to finalise the company. Often this happens after a creditor makes a formal demand for payment of debts. If the formal demand isn’t paid, a company is deemed insolvent and liable to be wound up by Court order. If a company is wound up, a court will appoint a liquidator to collect and distribute any assets and pay creditors (if possible).

Laptop computer and glasses on a desk

If you’re concerned that your company is insolvent, or if you are owed money, goods or services by a company that you suspect is insolvent, contact us for an interview. In many cases, we’ve been able to help our clients keep their businesses or recover money, even when the situation has appeared unsalvageable.

Need advice? Just ask us a question

What is debt collection?

Debt collection is also known as debt recovery.

A debt is money that is owed by one party (the debtor) to another (the creditor).  It usually arises when there is a deferred payment system in place, for example, an invoice for services, with payment terms of 14 days. Another example is the use of a credit card. The main feature is that there’s a legal obligation on the debtor to pay the creditor.

Debts can arise in all sorts of personal and commercial circumstances.

When a debtor doesn’t pay the debt, the creditor may use debt collection to recover the money. They may engage a debt collection agency to do this.

If debt collection fails, the creditor may take legal action to recover the debt. Subject to a few exceptions, a creditor has six years from the date of the debt to sue the debtor.

If a creditor is pursuing you for payment of a debt and you need legal assistance, contact us to find out how we can help. If you need debt recovery services or want to take legal action to recover a debt, we can help you sort it out.

Is insolvency the same as bankruptcy?

Insolvency and bankruptcy are not the same.

In Australia, insolvency refers to a company, business or person that is unable to repay debts on time.

  • For a company or business that becomes insolvent, they may enter into liquidation so that the company can be wound up and any assets distributed to creditors.
  • For an individual, the state of insolvency (or being a debtor) may lead to a declaration of bankruptcy. This is a court process in which a bankruptcy trustee is appointed to take control of the bankrupt person’s assets and finances and, where possible, pay the creditors.

A person can become a bankrupt voluntarily, or a creditor can apply to have a person declared bankrupt. A bankruptcy declaration usually has a lifetime of three years.

Working at a table

Bankruptcy isn’t the answer in every debt situation.

If you’re a debtor, it’s important to be aware of the consequences of being declared bankrupt. For example:

  • Your assets may be sold to pay your debts
  • A trustee will manage your bankruptcy, meaning that they will make financial decisions and may charge you a fee for their services
  • You may be restricted in your employment and may not be allowed to run a business
  • You may still have to repay some unsecured debts
  • You will be listed on the National Personal Insolvency Index, which is permanent even when the bankruptcy declaration period ends
  • You may struggle to secure credit or loans in the future
  • You may not be allowed to take legal action for any reason
  • You may not be allowed to travel overseas

If you’re considering voluntary bankruptcy, you’ll need legal advice.

There may be a suitable alternative to bankruptcy that we could advise on.

If you’re a creditor, contact us to discuss whether a bankruptcy declaration will help you recover the debt owing to you.

Why choose DBH?

Adelaide’s expert insolvency and debt collection lawyers

  • Corporate and personal insolvency
  • Bankruptcy and debt collection
  • Company liquidation and voluntary administration
  • No-nonsense advice

We have outstanding experience in debt collection and insolvency, acting for both creditors and debtors.

We can help you recover your financial position, or help you find your way through the difficult times.

Frequently asked questions

In cases of insolvency, there are two types of creditors:

  1. Secured creditors
  2. Unsecured creditors

Secured creditors hold a security interest over land, business or other assets. A mortgage is a security interest, so banks and other lenders are often secured creditors. These types of debts are registered as charges against the business so that in the event of liquidation of assets, the secured creditor is first in line to recover the debt. Or if there’s a default on debt repayments, the secured creditor can take possession of the asset over which they have security, for example, repossession of real estate.

Unsecured creditors have no security interest over the business. They’re often consumers who have paid in full for goods or services yet to be delivered, or those who have paid deposits or bought gift cards or vouchers. They may be providers who are awaiting payment from the debtor, or they may have made unsecured loans to the company (for example, loans from the business operators’ family or friends).

Unsecured creditors tend to have fewer payment guarantees than secured creditors, due to the debt being unsecured. If you’re an unsecured creditor and are concerned about whether you’ll be paid, contact us for urgent legal assistance.

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