When Does Someone Become Insolvent?
A person or a company becomes insolvent when they are incapable
of paying their debts on time.
Insolvency can come in two forms: cash-flow insolvency and balance-sheet insolvency.
When you or your business is in the brink of insolvency, talking to a reliable advisor will help you in many ways.
What Should I Do
When My Company is Insolvent?
Stop Trading and Transactions
When you know that your company is in the brink of facing insolvency, you should immediately stop all your trading and transactions to begin working in the interest of your creditors.
Seek Professional
Help
It’s better to seek professional help during these trying times. Our company's priority is to give you the possible ways for you to have the best possible outcome from this.
Choose The Next
Strategy
My Debt Relief only wants what’s best for your business, and the options that we’ll be giving to you depends on your business’s standing. Either negotiate settlements or proceed in a more formal process.
Types of Corporate Insolvency
Three common types of corporate insolvency procedures are
Receivership, Voluntary Administration, and Liquidation.
Receivership
When a secured creditor who holds charge over some or all of the company’s assets appoints a receiver to collect and sell the company’s charged assets, this is what is called Receivership. The appointed receiver is to repay the debt to the creditor by selling enough of the company’s charged assets.
Voluntary Administration
A voluntary administrator is an external administrator appointed by the directors of a financially troubled company or a secured creditor with a charge over most of the company’s assets.
The voluntary administrator’s role is to investigate the company’s affairs, to give a recommendation to the creditors on what actions should be done next with the company. It’s either they suggest that the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.
Liquidation or Winding up
Liquidation is the formal manner of the winding up of a company’s affairs. When a company is being liquidated, the assets will be sold in order to pay the creditors and any surplus will be given to the shareholders. The three types of liquidation are:
- Court; a result of a court order usually filed by the creditor
- Creditors’ voluntary; liquidation initiated by the company
- Members’ voluntary.
Deed of Company Arrangement (DOCA)
A DOCA is a binding arrangement between a company and its creditors to set out how the company affairs will be dealt with. This usually occurs when a company enters voluntary administration as this arrangement aims to maximise the chances of the company continuing and prevent liquidation. It’s also done in the hopes of providing a better return for creditors than an immediate winding up of the company.
Bankruptcy
A legal process that is filed by a debtor to declare that they are no longer capable of repaying their debts due to the company’s current financial situation. By filing bankruptcy, the debtor is protected by surrendering his/her assets to exchange it for relief from some of his debts.
Formal Debt Agreement
A debt agreement is also referred to as a Part 9 or Part IX debt agreement. It falls under Bankruptcy Act 1966. It is a way to come to an arrangement with your creditor to settle debts without becoming bankrupt.
