What is insolvency?
Under Australian Law ‘a person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable’. Therefore insolvency generally occurs when a person or company is unable to meet their debts as they become due and payable. Solvency is normally assessed on cash flow, but a company’s balance sheet may also be considered.
Difference between bankruptcy and insolvency?
There is a distinction in Australian law between bankruptcy (which applies to individuals) and insolvency (which applies to corporate bodies).
There are several options available to an insolvent person / company:
• the most common insolvency procedures for an insolvent person are bankruptcy and personal insolvency agreement; and
• the most common insolvency procedures for an insolvent company are liquidation, voluntary administration and receivership.
Directors and officers who trade a company while it is insolvent potentially expose themselves to civil and criminal liability under Australian law.
However, insolvent trading laws have recently been reformed to include a ‘safe harbour’ carve-out for directors from personal liability.
What is restructuring?
Insolvency laws generally do not take account of an insolvent company’s longer-term prospects, its competitiveness, assets, or brand value, and are geared towards its premature closure and liquidation.
It does not allow for the possibility that, through some restructuring or assistance, the company could return to profitability and preserve the interests of creditors.
However, restructuring is increasingly being seen as a way to modify the debt, operations, or structure of a company to limit financial harm and improve the performance of the business.
Who we act for
Our clients include:
- Turnaround specialists
How we help our clients.
Our team at Mahoneys is made up of experienced commercial litigators who regularly support clients with their debt recovery, solvency, recovery and restructuring needs.
Our team is also supported by lawyers who specialise in corporate structuring, advice, finance and transactions, workplace relations and property.
Specifically, the key services we provide include advising on, and assisting with, the following:
- Debt recovery
- Creditor claims
- Voidable transactions
- Preference claims
- Mortgagee disputes / sales
- PPSR enforcement / disputes
- Statutory demands
- Caveat enforcement / disputes
- Enforcements of judgments
- Directors’ duties
- Creditor priority disputes
- Director penalty notices
- Winding up applications
- Insolvent trading
- Safe harbour provisions
- Corporate restructures
- Turnaround and workouts