It is important that directors understand their obligations and the avenues that are available to them if they consider their company is insolvent. Insolvency lawyers understand the insolvency process and can provide practical and legal advice on how to navigate the process.

There are legal options available to directors to avoid liquidation and it may not mean the end of the business.

Safe Harbour

Safe harbour provisions are advantageous to directors whose companies are experiencing financial difficulties paying their bills. They are designed to allow the directors time to allow the company to trade whilst insolvent in order to turn the company around. They offer protections and relief to directors from incurring liabilities and prosecution such things as:

• Personal liabilities for Employee entitlements
• Claims for trading whilst insolvent

There are strict conditions to allowing directors this relief. Obtaining legal advice, specific to insolvency, provides Directors the protection of these safe harbour provisions.

There are many other aspects to Safe Harbour provisions and you should obtain legal advice about your specific situation to ensure you are covered and remain so.

Restructuring Advice

At the outset restructuring the company and debt restructuring should be investigated. If possible, creditors of the company may be negotiable and take a reduced amount or accept a payment plan.

There are different ways to restructure debt that will allow the company to trade out of a difficult patch.

An insolvency lawyer will be able to assist and advise in such negotiations and draw up settlement deeds so that the parties are protected by the new arrangement.

This can help companies avoid a default and sometimes allow additional time for directors to access additional capital. Capital can be sourced from the owners own personal wealth or other investors such as angel investors.

Administration

Placing a company in administration allows for an Externally Appointed Administrator to enter into debt negotiations with the creditors. There are different categories of creditors and types of debts such as secured and unsecured creditors.

These creditors vote on the proposal by the administration and if accepted then a Deed of Company Arrangement is drawn up. Creditors typically accept a smaller debt being repaid over a negotiated period of time.

The administrator also has the power to renegotiate other contracts and leases as well that may be hindering the company’s financial performance. If the creditors do not accept the new proposal then the company is placed into liquidation.

Administrators and liquidators do not act for the directors and must provide a report to ASIC after the matter is finalised. It is important that you understand the nature of the relationship and that they do not act for you – only your lawyer (or Accountant) will act to protect your interests during Administration.

Liquidation

If the companies creditors do not agree to a debt restructuring or the company is to be wound up it can be placed into liquidation. This is where the assets of the company are sold and the company is wound up. The proceeds of the sale are distributed to the creditors.

Liquidation can be a difficult process and issues can arise during liquidation that you may require additional advice on.

Directors Duties

Throughout the process of Administration or liquidation the directors lose the control of the companies and must comply with the administrator or liquidator. Where a dispute may arise it can be helpful to obtain legal advice as their requests may be overreaching or positioning you. All correspondence must also be carefully considered as it may be used against you down the track.

Obtaining legal advice will ensure that your queries are answered by someone that is looking out for your best interests and not looking to recover funds or position you.

If a dispute does arise it is important to treat it seriously as an administrator or liquidator can make recommendations to ASIC for penalties, both civil and criminal.

Act Now and Get Advice Early

If you company is having difficulties in meeting in paying its debts, you should consider your options. By being informed you as the directors can make the best decisions.

Acting early and being well advised will give your company the best opportunity to avoid liquidation and the winding up of your company. Our insolvency lawyers are experienced and can help you with providing options and both legal and practical on restructuring and renegotiation of your debts.

Our commercial lawyers have extensive experience in helping business owners and directors in insolvency matters.

To speak to an insolvency lawyer on a confidential basis call us on 1300 907 335 or complete an online enquiry form and we will be in contact promptly.

What is insolvency?

Insolvency is where a company or entity cannot pay it’s debt when they fall due. If a company is deemed insolvent it must cease to trade. If directors continue to trade a company whilst it is insolvent there are civil and criminal penalties for doing so. “Trading whilst insolvent” is illegal under the Corporations Act.