What to do if your company is insolvent

• Is my company in financial difficulty? 
• What do I do if my company is in financial difficulty? 
• What if my company is insolvent?

Is my company in financial difficulty?

Your company might be in financial difficulty if it has ongoing losses, poor cashflow, unpaid creditors outside usual trading terms and problems obtaining finance. Other signs include:

• absence of a business plan
• incomplete financial records or disorganised internal accounting procedures
• lack of cash-flow forecasts and other budgets
• increasing debt
• problems selling stock or collecting debts
• overdue taxes and superannuation liabilities
• solicitors’ letters, demands, summonses, judgements or warrants issued against your company
• suppliers placing your company on cash-on-delivery terms
• special arrangements with selected creditors (e.g. payments to creditors of rounded sums not reconcilable to specific invoices) 
• overdraft limit reached or defaults on loan or interest payments 
• change of lender or increased monitoring/involvement by financier 
• inability to raise funds from shareholders 
• board disputes, director resignations or loss of management personnel 
• increased complaints from customers.

If you receive a director penalty notice from the Commissioner of Taxation for your company’s unpaid and unreported Pay As You Go (PAYG) withholding or Superannuation Guarantee Charge (SGC) amounts, you should immediately seek competent and relevant professional advice. Failure to take appropriate steps within 21 days may result in personal liability for the unpaid company tax.

What do I do if my company is in financial difficulty?

If you suspect your company is in financial difficulty, get competent and proper accounting and legal advice as early as possible to increase the chance of the company's business surviving. Do not put your ‘head in the sand’ and hope things will improve — they rarely do.

A suitably qualified registered liquidator can conduct a solvency review of your company and outline available options, including refinancing, restructuring or changing your company’s activities, or appointing an external administrator.

What if my company is insolvent?

If your company is insolvent, do not incur further debt. Unless it is possible to restructure, refinance or obtain equity funding to recapitalise the company (see: safe harbour) — your options are to appoint a registered liquidator to act as a liquidator or as a voluntary administrator. The three most common insolvency procedures are liquidation, voluntary administration and receivership.  

• List of registered liquidators

Liquidation

In a liquidation an independent registered liquidator takes control of the company so its affairs can be wound up in an orderly and fair manner for the benefit of all creditors.

A registered liquidator can advise you of the steps required to appoint a liquidator. Generally, a director-initiated liquidation involves calling a meeting of members to vote on winding up the company and appointing a liquidator. A creditor or any person with an interest in the company can apply to the Court to wind up the company.

Voluntary administration

Voluntary administration is designed to quickly resolve the company’s future. An independent registered liquidator (the voluntary administrator) is appointed by the director(s) to take full control of the company. This gives the director or third-party, usually in consultation with the voluntary administrator, time to find a way to save the company or the company’s business, if possible.

The director(s) will need to obtain the written consent of a registered liquidator to act as voluntary administrator before they can make the appointment.

The voluntary administrator aims to administer the company’s affairs to obtain a better return to creditors than if the company had been immediately wound up. A better return may be achieved through a deed of company arrangement (DOCA) Where a DOCA isn't proposed or accepted by creditors, the company may still proceed to liquidation.

Receivership

A company goes into receivership when a secured creditor who holds security over some or all the company’s assets appoints a registered liquidator to act as a receiver or a receiver and manager. The receiver’s role is to collect and sell enough of the company’s assets to repay the debt owed to the secured creditor.

A director who is also a secured creditor should seek competent and appropriate legal advice before appointing a receiver.

Even if a receiver is appointed, you can appoint a voluntary administrator or liquidator to deal with any assets not subject to a security interest and/or to deal with unsecured creditor claims.