Insolvency & Bankruptcy

Resolving Financial Stress​

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Small Business Restructuring Process

Introduced in 2021 in response to the COVID-19 pandemic, the small business restructuring process  allows the directors and management of a company to remain in control. It gives them the opportunity to propose a plan to deal with the company’s  debt within a 3 year period and is available to eligible companies. 

Contact Pace Lawyers to find out if your company is eligible.

Business Turnaround Management

The Turnaround Management process allows a full review of the business with the opportunity to identify underlying issues and reasons for declined performance or financial stress. It also provides for identifying strengths of the business and the development of a turnaround plan to help the business get back on track.

You should speak to your accountant in conjunction with an experienced insolvency practitioner at Pace Lawyers in relation to developing a plan that works for your business.

Safe Harbour

Safe Harbour is a process which allows directors a defence against liability for debts of the company business and is codified in Section 588GA of the Corporations Act. It only applies, however, under certain circumstances.

The crucial elements are:

• When a director starts to suspect a company may be insolvent or is at risk of becoming insolvent, they start developing one or more courses of action that are reasonably likely to lead to a better outcome for the company; 
• The debt is incurred directly or indirectly in connection with that course of action and during a specified time period.

Section 588GA(2) lists some guiding factors in determining whether a course of action is reasonably likely to lead to a better outcome for the company than an immediate voluntary administration or liquidation. These factors are whether the director is:

• properly informing himself or herself of the company’s financial position; or
• taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company’s ability to pay all of its debts; or
• taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or
• obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or
• developing or implementing a plan for restructuring the company to improve its financial position.

Directors should bear in mind that the safe harbour protection will not apply if a debt is incurred by an insolvent company when it is not substantially complying with payment of employee entitlements (including superannuation) as and when they fall due and or its taxation compliance obligations.

The options for insolvent businesses or individuals

There are several options for the insolvent business or individual.

Administration

A company with financial problems may be placed into administration. This can be either voluntary, or involuntarily. Voluntary administration is chosen by the directors, whereas involuntary administration is driven by creditors that are owed money for goods or services provided to the company.

Personal Insolvency

The insolvency procedures for an insolvent individual are bankruptcy and personal insolvency agreements.

Bankruptcy

Bankruptcy occurs when an individual is unable to pay their debts and a trustee is appointed to take over their finances. From then on, the trustee will be the point of contact for your debtors and will usually sell the property of your estate (with some exceptions) to pay your debts. The law governing bankruptcy is the Bankruptcy Act 1966 which applies Australia wide. This act stipulates that a bankruptcy case can be heard by the Federal Court of Australia and the Federal Circuit Court of Australia. The body responsible for personal bankruptcy and insolvency law is the AFSA or the Australian Financial Security Authority.

Bankruptcy typically lasts for three years, after which the bankrupt individual is released from their prior debts and able to make a new start.

Bankruptcy can have long term legal ramifications. If you find yourself facing bankruptcy, get in touch with Pace Lawyers today. One of our very helpful lawyers can help to guide you through your options.

How Do I Go Bankrupt?

There are two ways in which a person can go bankrupt:

Voluntary Bankruptcy

An individual can file for bankruptcy by filing a debtor’s petition with the Official Receiver in Bankruptcy.

Forced bankruptcy

You can also be made bankrupt when one or creditors successfully petition the Federal Court for a bankruptcy order over your personal estate. This is called a sequestration order.

If you find yourself in a situation where your debt becomes unmanageable, the first step you should take is to seek financial advice. Bankruptcy should only be considered if you cannot reach an arrangement that will suit.

Sometimes other arrangements can be reached with your creditors. In the case of a  “Deed of Arrangement” the debtor will hand over their affairs to a trustee who will work to provide returns to the creditor. Informal agreements can also be reached with your creditors that can help with your debts.

The Pro’s and Con’s of Bankruptcy

Con’s

Any property you own will vest in the trustee and be sold to meet your debts. Other assets will be taken as well unless exempt (as outlined above).

Your bankruptcy will appear on your credit record, which will affect your future ability to borrow money. 

You will not be able to be the director or manager of a company. 

Some occupational licenses will be affected and you will have restricted ability to travel internationally.

Not all debts are released. You will still have to pay the following:

• Child support
• Court imposed penalties and fines
• Student assistance/loans
• Centrelink debts (if the payments proved to be fraudulent)
• Council and water rates
• Secured debts, such as mortgage

It is important to take an in-depth review of the situation before delving into the many options available in the bankruptcy context as your family members may also be affected by your bankruptcy.

We understand these are some of the most stressful times you may go through and we are here to use our skill and expertise in this area to assist.

Expert Insolvency Lawyers

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