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Company - Bankruptcy |
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In Australia company bankruptcy is insolvency. When a company is bankrupt it cannot pay its bills as and when they fall due and is wound up by its creditors or by the directors or shareholders. |
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Insolvency is the inability of a person - an individual or a corporation - to pay all their debts as and when they fall due. This is how insolvency is defined in both the Bankruptcy Act and the Corporations Act.
In Australia, insolvency of an individual is formally dealt with under the Bankruptcy Act and the terms bankrupt and bankruptcy are used. The insolvency of companies is dealt with under the Corporations Act;the generaly terms used there are liquidation or winding up.
Here we will be dealing with companies and the Corporations Act.
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If a company cannot pay its creditors eventually one of them will start winding up proceedings. I have found that even close friends of the directors will eventually wind up companies. They have to pay their creditors too.
On one occasion when I asked if the director knew the applicant he said that “he was the son that I never had”, and on another “he was like a brother, last year we were the only non member of his family to go to his birthday party”. There is an old saying that if you wish to lose a friend, lend him some money.
Often financial difficulties are brought about by accidents, bad creditors, bad investments, stupid decisions, downturn in the economy and a host of other reasons. Whatever they are does not matter, the situation must be resolved. Often negotiating and coming to a payment arrangement will sort things out. The applicant will defer the action (often several times) until the debt is paid off or until he is satisfied that you are serious about paying him. Every time he defers the action it will cost you somewhere $500 to $1,000. That is the price to pay for your company.
We often obtain short term loans to cover creditor payments. These must be looked at very carefully as the interest is high and the penalty interest is even higher. Some lenders appear to want you to default so that they can charge the higher rate and sell your security.
When a winding up application is withdrawn it leaves a space for ANY of your other creditors to step into their shoes. This must always be considered. |
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