How do I know if my company is insolvent?
The primary test of insolvency is whether there is sufficient cash available to pay debts in full as and when they fall due. Symptoms of insolvency can include being unable to afford to pay all creditors as per their trading terms, entering into instalment repayment agreements, ongoing trading losses, an inability to borrow funds, being issued demand notices from creditors, having cheques dishonoured, or an inability to produce accurate financial records.
What if my company is insolvent?
If your company is insolvent, do not allow it to incur further debt. Unless it is possible to promptly restructure, refinance or obtain equity funding to recapitalise the company, generally, your options are to appoint an Administrator or a Liquidator.
What are my personal ramifications of appointing an Administrator or Liquidator?
If you have provided personal guarantees to creditors, those creditors may use the appointment of a Liquidator as an opportunity to call upon the guarantee. During a Voluntary Administration there is a moratorium on personal guarantees being called upon. If you have been a director of multiple insolvent companies, you may risk being disqualified from being a director by the Australian Securities and Investments Commission. It is always prudent for company directors to seek their own independent legal advice about any potential personal ramifications of a potential external administration appointment.
What is the consequence for me if my company has traded while insolvent?
Corporations legislation makes it an offence for directors to trade and incur debt if their company is insolvent. A Liquidator (or other eligible parties) can also seek monetary compensation from a director equivalent to the loss suffered by insolvent trading. There are defences stipulated in the legislation which directors may be able to avail themselves of. It is always prudent for company directors to seek their own independent legal advice about any potential personal ramifications of a potential external administration appointment.
Can I instruct an Administrator or Liquidator?
No. An Administrator and Liquidator must act, and be seen to act, independently and without bias from any stakeholders (including directors). It is your responsibility to co-operate with an Administrator or Liquidator. Typically, Administrators and Liquidators will understand and appreciate the difficulties and stress you may be experiencing and will be available to answer your queries as best as possible.