Fact Sheets

Insolvency

Court Liquidation

A court liquidation is a Court appointment that takes place as a consequence of an applicant, usually a creditor, applying to the Court for an order that a company be wound up in insolvency.

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Creditors’ Voluntary Liquidation

A creditors’ voluntary liquidation is initiated by a company when the directors believe that the company is insolvent, or likely to become insolvent in the near future, and the company and/or business should not remain in existence.

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Deed of Company Arrangement

A deed of company arrangement (DOCA) is a binding arrangement between a company and its creditors setting out how the company’s affairs will be dealt with to resolve the company’s debt problems without having to liquidate the company.

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Director Penalty Notice

A Director’s Penalty Notice (“DPN”) is issued by the Australian Taxation Office under Section 222AOE of the Income Tax Assessment Act 1936 which makes directors personally liable for two types of tax debts, Pay as You Go (“PAYG”) withholding and Superannuation Guarantee Charge (“SGC”).

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Indicators of Insolvency

There is no hard and fast rule in determining the insolvent state of a company, however, it is important to understand and be aware of the early warning signs of insolvency.

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Voluntary Administration

A voluntary administration is an option for an entity experiencing financial difficulty to appoint an independent external administrator to take control of the affairs of the company to determine the future direction of the company.

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Alternatives to Bankruptcy

The bankruptcy legislation provides the option for a person unable to pay his/her debts (‘debtor’) to put forward a proposal to creditors for a Personal Insolvency Agreement (‘PIA’) as an alternative to going bankrupt.

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Consequences of Bankruptcy

It goes without saying that becoming bankrupt has significant consequences. Advice should be sought from us when contemplating bankruptcy as your particular circumstances will have to be assessed and advice provided specific to your particular circumstances.

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How do I become bankrupt?

Bankruptcy is either initiated either voluntarily in circumstances where you are unable to pay your debts or where a creditor successfully applies to the Court for an order that you be made bankrupt.

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Getting out of Bankruptcy

Usually bankruptcy runs for a period of three years and one day, however if your circumstances allow it you may be able to have your bankruptcy annulled (cancelled).

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Restructuring

Members’ Voluntary Liquidation

A members’ voluntary liquidation or MVL, is a liquidation of a solvent company initiated by shareholders for the purposes of winding up the Company and distributing its assets in accordance with the Company’s constitution.

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Safe Harbour

The safe harbour provisions of section 588GA of the Corporations Act 2001 (“the Act”) provide directors with a form of defense to potential breaches to the insolvent trading provisions of the Act when attempting to restructure their company outside of formal insolvency.

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