The following are some frequently asked questions we often hear from businesses in regards to insolvency.
Q: When is a business insolvent?
A: Insolvency is when a business is unable to pay their debts as and when they fall due. This can be attributed to low cash reserves or poor cash flow. It is best to seek advice from an insolvency specialist at the earliest possible opportunity.
Q: What is insolvent trading?
A: Insolvent trading is the ongoing operation of a company that is not able to meet the repayments for their debts. Company directors are liable for insolvent trading if legal action is pursued by the liquidator on behalf of creditors.
Q: If a company is being liquidated, what are the directors' responsibilities?
A: It is the duty of the company director to co-operate with the liquidator during the insolvency process by promptly completing their Report as to Affairs form and provide all required company books and records.
Q: When is a company director liable for the debts of the company?
A: The company director is usually not liable for the debts of a company unless they have an personally guaranteed debts, have an expired Director Penalty Notice from the ATO (prior to administrator has been appointed), they have been found guilty of insolvent trading or owe certain personal liabilities.
The following are commonly asked questions that we receive regarding bankruptcy.
Q: How do I know if I need to declare bankruptcy?
A: Bankruptcy can either be voluntary or involuntary. Voluntary bankruptcy is when you elect to declare bankruptcy yourself. Involuntary bankruptcy occurs when a creditor who is owed more than $5,000 applies to have you declared bankrupt.
If you unmanageable debt levels and you are unable to meet your debt repayments in the foreseeable future, bankruptcy may be an option for you. Before taking the steps to bankruptcy it is advisable to speak with a bankruptcy specialist.
Q: Can a creditor force me into bankruptcy?
A: If you owe a creditor more than $5,000, the creditor can apply to the court to have you declared bankrupt. You must be issued a Bankruptcy Notice (Form 1) by the debtor. This gives you 21 days to repay the debt.
Q: What do I have to do to declare bankruptcy?
A: You will need to complete a Debtors Petition and Statement of Affairs form listing all your creditors, their contact details and the amounts that they are owed. You will also need to list your personal assets and any money owed to you.
Q: How long will I be bankrupt?
A: Bankruptcy will last for a period of three years and one day from when the forms are filed. This can be longer if you breach certain conditions outlined
Q: What is an unsecured debt?
A: An unsecured debt is where the creditor has not accepted the guarantee of a property/asset in return for loaning money such as a credit card.
Q: What is a secured debt?
A: A secured debt is where a creditor holds the right to ownership of a property/asset until the debt is repaid such as a home loan.
For more comprehensive answers and more information regarding insolvency and bankruptcy, contact the ATO, ASIC or speak with PKF Sydney on (02) 8346 6000, our Melbourne office on (03) 9679 2222, or (02) 4962 2688 for our Newcastle office.