In part one of this series, we discussed indicators of corporate insolvency and consequences for directors found to be trading insolvent. We now turn to consider what options insolvent companies can choose to pursue. This article will set out the three most common insolvency procedures: voluntary administration, liquidation and receivership.
Voluntary Administration is a type of insolvency procedure whereby an external administrator, known as a voluntary administrator, is appointed to investigate the company’s affairs. He or she reports and provides recommendations to creditors as to whether the company should:
- Go into liquidation;
- Enter into a Deed of Company Arrangement; or
- Be returned to the directors of the company and the administration cease.
Generally, a voluntary administrator is appointed by the directors of the company if they decide that the company is insolvent or is likely to become insolvent. A secure creditor or liquidator can also appoint a voluntary administrator.
Liquidation is the winding up of the company’s affairs. There are three types of liquidation being:
- court liquidation, which starts as a result of a court order;
- creditors’ voluntary liquidation; and
- members’ voluntary liquidation.
Liquidation involves collecting and selling the company’s assets, termination or sale of its operations, distributing the proceeds of sale amongst the company’s creditors and distributing any surplus funds among the company’s shareholders.
A court liquidation results from a court order that a creditor of the company makes. A members’ voluntary winding up is the process a solvent company uses when its members (shareholders) wish to wind up the company. A company initiates a creditors’ voluntary liquidation.
Generally, a creditor who holds a valid registered charge over some or all of the assets of the company appoints a receiver. The registered charge must allow for the appointment of a receiver. A receiver’s primary role is to collect and sell the company’s charged assets to repay the debt owed to the secured creditor.
The receiver acts on behalf of the secured creditor. The court can also appoint a receiver on an application.
If your company is facing financial hardship, it is strongly advised that you consult with an insolvency lawyer to understand your options. If your company is owed money, we can assist with all of your debt recovery needs. If you want a fixed-fee quote, get in touch with us on 1300 544 755.