Is your company insolvent? A company is insolvent when it is unable to repay its debts as they fall due. If this is the case, you should seek the assistance of an insolvency lawyer as soon as possible!
If your company is currently solvent, but you, for any reason, wish to cease trading, you can close the company by way of deregistration or a voluntary wind up.
As a director of a company, you have general duties which are imposed by the Corporations Act. This includes:
- a duty to exercise your powers and duties with care and diligence;
- a duty to exercise your powers and duties in good faith in the best interests of the company;
- a duty not to improperly use your position to gain an advantage for yourself or anyone else; and
- a duty not to improperly use information obtained through your position to gain an advantage for yourself or anyone else.
You also have a duty to prevent the company from trading whilst insolvent. If you realise that your company is or may be insolvent – do not allow the company to incur any further debt.
If a company is found to be trading whilst insolvent, the consequences for a director are serious. Consequences may include civil penalties, compensation proceedings, and criminal charges.
Generally, if it is not possible to restructure, refinance or recapitalise a company, a director’s option is to appoint a voluntary administrator or a liquidator. On the appointment of an administrator or liquidator, the directors would no longer have control of the company.
The process for voluntary administration is as follows:
1. There needs to be a decision to appoint an administrator. This can be decided by the directors of the company through a board resolution in writing.
2. Once the board resolution has been passed, a voluntary administrator can be appointed and voluntary administration begins.
3. Unless the courts allow an extension of time, within 8 business days of appointment of a voluntary administrator, there must be a meeting of creditors. This is the first meeting. The creditors can vote to either replace the administrator or create a committee of creditors.
4. The administrator will investigate the company’s affairs and report to the creditors on the alternatives.
5. Unless the courts allow an extension of time, within 25 or 30 business days of appointment of a voluntary administrator, there needs to be a further meeting between the creditors to decide the company’s future. This is the second meeting.
At this meeting, the creditors can decide to:
- return the company to the directors;
- accept a deed of company arrangement; or
- put the company into liquidation.
If the creditors decide to accept a deed of company arrangement, then, unless the court allows an extension of time, within 15 business days, the company should sign a deed and deed administration begins.
If the creditors decide to put the company into liquidation, then immediately, the administrator becomes the liquidator for the company.
Given the serious consequences of insolvent trading, if you believe that your company may be insolvent, we recommend that you speak to an insolvency lawyer as soon as possible. LegalVision has experienced insolvency lawyers who can provide you with guidance on the next steps, and assist throughout the voluntary administration process. If you have any questions, give us a call today.
LegalVision has a team of great insolvency lawyers who can assist you. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.