Company Insolvency


by Danny Saad - Date: 2010-08-22 - Word Count: 493 Share This!

Corporate insolvency may be beneficial to you whether you are owed money or whether your company owes money. Prime Lawyers has an experienced corporate insolvency team who can assist both creditors and debtors with advice and legal representation in all aspects of corporate insolvency.

Please feel free to contact us on (02) 9521 2222 if you have any questions about corporate insolvency, whether you are a creditor or debtor.

What is insolvency?

An entity (whether an individual or a corporation) is insolvent if it cannot pay its debts as and when they fall due.

'Winding Up' a company which owes you money

In relation to a company, a creditor may rely on an act of insolvency (often being a company's non-compliance with a Creditors Statutory Demand issued in accordance with the Corporations Act) to apply to the court for an order to wind-up the company and have a liquidator appointed, often referred to as the liquidation of the company.

Advantages for a creditor proceeding to 'wind up' a company
Advantages for a creditor of proceeding to liquidation include:

1. Finalisation all debts.

2. Because of the serious consequences of insolvency, when facing a Statutory Demand/wind-up proceedings debtors often pay their debt to avoid liquidation.

3. An external liquidator investigates the company's affairs to find out whether the debtor has deliberately disposed of assets to avoid creditors receiving the benefit of those assets. If the debtor has done so, in certain circumstances the liquidator may "claw back" assets for the benefit of creditors.

Disadvantages for a creditor of proceeding to 'wind up' a company

1.The creditor who initiates the insolvency has no special priority over other creditors to get their debt paid. Therefore if the debtor has insufficient funds to meet all their debts, the creditor might not get all (or any) of their debt paid back even though they initiated the insolvency.

Entering voluntarily insolvency

Alternatively, depending on the particular circumstances, the company may voluntarily enter liquidation or appoint an administrator. If a creditor of the company has security for the debt, the creditor might be able to appoint a receiver or receiver and manager. Please contact us for further information regarding this and to determine whether this may be a viable option to your company.

My company has had insolvency proceedings commenced against it, what do I do?

If your company is subject to insolvency action by creditors, it is essential that you take prompt action.

If you are served with a Creditors Statutory Demand you have only 21 days within which to either pay the debt or, if there is a genuine dispute as to the debt or some other reason why you should not pay, apply to the court to have the Statutory Demand set aside. If you do not within this time frame, your company will be deemed to have committed an act of insolvency.

If a creditor commences wind-up proceedings against your company you should seek legal advice urgently, to determine the grounds of your opposition to the winding-up and to prepare the appropriate court documents.


Danny Saad has many years experience in Business Law working with the experienced Business Lawyers at Prime Lawyers in Sydney.n
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