Term | Definition |
| AFSA – Australian Financial Security Authority | The Australian government agency responsible for regulating personal insolvency. |
| ARITA – Australian Restructuring Insolvency & Turnaround Association | The Australian association for insolvency and restructuring professionals. |
| ASIC – Australian Securities and Investments Commission | The Australian government agency responsible for regulating corporate insolvency. |
| Asset | Something of value owned by a person or company. |
| Bankrupt | A person who has been placed in bankruptcy. |
| Bankruptcy | A personal insolvency procedure where people who can’t pay their debts give up their assets and control of their finances, either by agreement or court order, in exchange for protection from legal action by their creditors. |
| Bankruptcy Act 1966 | The legislation regulating personal insolvencies in Australia. |
| Corporate insolvency | Insolvency that relates to a company – as opposed to a person. Corporate insolvency procedures include:
|
| Corporations Act 2001 | The legislation regulating companies in Australia, including corporate insolvencies. |
| Creditor | A creditor is owed money by a person or company (the debtor). |
| Creditors’ voluntary liquidation | A type of liquidation that is initiated by the company. |
| Debt | An amount of money that is owed to a person or company for goods supplied or services provided. |
| Debt agreement | A flexible alternative to bankruptcy, a debt agreement is a legally binding agreement between a debtor and their creditors to repay the debt – usually for a lesser amount – by instalments. |
| Debt agreement administrator | A person or company appointed to administer a debt agreement. Doesn’t have to be a registered trustee. |
| Debtor | A debtor owes money to a person or company (the creditor). |
| Deed administrator | The insolvency practitioner appointed to carry out a deed of company arrangement. |
| Deed of company arrangement | A legally binding arrangement between a company and its creditors following a voluntary administration. The deed sets out how the company’s affairs and assets will be managed. |
| Insolvency practitioner | A professional who is registered by a regulator – AFSA and/or ASIC – and is authorised to administer insolvency procedures. Insolvency practitioners are often fully qualified accountants. Because of their specialist knowledge they are uniquely qualified to advise businesses and individuals on a wide range of insolvency-related issues and can support them through financial difficulties. See also Registered Trustee and Registered Liquidator. |
| Insolvent | When a person or company is unable to pay their debts when they are due for payment. |
| Insolvent trading | Occurs when a company that is already insolvent takes on more debt. Company directors can be held personally responsible for repaying debts taken on when a company is insolvent. |
| Liability | A legal obligation to pay a person or company. |
| Liquidation | A process which results in a company being shut down. All the company’s assets are sold, and the money raised is used to repay its debts. The term ‘winding-up’ is also used. The four types of liquidation are:
|
| Liquidator | The insolvency practitioner appointed to administer the liquidation of a company. |
| Members’ voluntary liquidation | A type of liquidation for solvent companies, that is initiated by the company. All the company’s creditors are paid in full. |
| Official liquidation (or court liquidation) | A type of liquidation that is initiated by a court order. |
| Personal insolvency | Insolvency that relates to a person – as opposed to a company. Personal insolvency procedures include:
|
| Personal insolvency agreement | A legally binding agreement between a debtor and their creditors to repay the debt – usually for a lesser amount – by instalments. |
| Personal property | Assets other than land and buildings. Includes cars, boats, business inventory, intellectual property (e.g. copyright and patents), bank accounts and debts. |
| Personal Property Securities Act – PPSA | PPSA is a law about security interests in personal property. |
| Personal Property Securities Register – PPSR | A national online register that records information about security interests. It is administered by AFSA. |
| Phoenixing | When a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts. |
| Provisional liquidation | A type of liquidation where a liquidator is appointed as a caretaker to safeguard a company’s assets while the court considers a winding-up application. |
| Realise | Convert assets into cash, usually by selling them. |
| Receiver | An insolvency practitioner appointed by a secured creditor under a receivership. A receiver may also be appointed by the Court. |
| Receivership | A process which entitles a secured creditor to appoint an insolvency practitioner as a receiver to a company. The receiver’s role is to take control of the secured assets to repay the secured debt. The loan agreement gives the creditor a right to appoint a receiver under certain conditions. |
| Registered Liquidator | An insolvency practitioner who is registered as a liquidator with ASIC. Only a Registered Liquidator can administer corporate insolvency procedures. |
| Registered Trustee | An insolvency practitioner who is registered as a trustee with AFSA. Only Registered Trustees can administer bankruptcies and personal insolvency agreements. |
| Restructuring | The process of reorganising the ownership, financing and/or operations of a company with the goal of making it more profitable. See also turnaround. |
| Secured creditor | A creditor that has security for a loan. |
| Security | An asset pledged to guarantee the repayment of a debt. Security is intended to cover the debt amount if the debtor can’t pay it back. |
| Security interest | Personal property used as security. Usually recorded on the Personal Property Securities Register. |
| Solvent | When a person or company is able to pay their debts when they are due for payment. |
| Trade creditor | A person or company that has supplied goods and/or services to the debtor and remains unpaid. |
| Trustee in bankruptcy (or simply ‘trustee’) | An insolvency practitioner who administers a bankruptcy or personal insolvency agreement. |
| Turnaround | The process of reviving a struggling company. |
| Unsecured creditor | A creditor that does not have security for a loan. |
| Voluntary administration | The purpose of a voluntary administration is to rescue – if possible – a company that’s in financial difficulty. A voluntary administrator is appointed who takes control of the company and manages its affairs until the creditors decide the company’s fate. |
| Voluntary administrator | The insolvency practitioner appointed to carry out the voluntary administration of a company. |
| Wind up (or ‘winding up’) | See liquidation. |
FAQs
How do you solve insolvency problems? ›
Preventing and overcoming insolvency involves proactive financial management, debt restructuring, and seeking professional advice to address financial challenges and maintain solvency.
How do I know if I qualify for insolvency? ›You are deemed to be insolvent if your total liabilities (debts) are greater than your total assets. Completing the insolvency worksheet at the bottom of this document will help you determine if you were insolvent at the time your debt was discharged.
What is insolvency for dummies? ›Insolvency is a state of financial distress in which a person or business is unable to pay their debts. Insolvency is when liabilities are greater than the value of the company, or when a debtor cannot pay the debts they owe.
What is the term of insolvency? ›Insolvency is the state of not having enough assets to meet all debts, or being unable to pay debts as and when they are due. If a creditor can establish that an individual or company is insolvent, he or she will be able to present a winding-up petition.
How do you solve solvency problems? ›That typically begins with considering operational changes, possible debt management, capital raises and other potential transactions that can improve solvency. And if those approaches fail, the company needs to be prepared for a comprehensive restructuring solution that maximises its future value.
How do I clear insolvency? ›(a) Annulment Order under section 105 of Insolvency Act 1967; This application is filed by the bankrupt once all debt owed debt has been paid in full by the bankrupt through DGI to all creditors that has proven their debt in bankruptcy together with the fees and cost of case administration.
What qualifies as insolvency? ›Generally speaking, insolvency refers to situations where a debtor cannot pay the debts they owe. For instance, a troubled company may become insolvent when it is unable to repay its creditors money owed on time, often leading to a bankruptcy filing.
What counts as assets for insolvency? ›How to Complete an IRS Insolvency Worksheet. First, prepare a list of all of your assets and indicate the fair market value for each. An asset is considered a valuable item that you can sell for cash. Assets can include your car, your home, jewelry, or other valuables.
What items are considered on the insolvency worksheet? ›Provide details about your assets, including property, vehicles, investments, and any other valuable possessions. List all sources of income, including employment, rental income, and government benefits. Include information about your debts, including outstanding loans, credit card balances, and any other obligations.
Who pays for insolvency? ›Creditors Can Pay For The Liquidation
If neither the company nor its Directors can afford to pay for a Liquidation, or in the case of Directors, do not want to personally pay for the Liquidation then creditors may end up having to pay.
What are the two 2 types of insolvency? ›
There are two main types of insolvency: cash flow insolvency and accounting insolvency. Cash flow insolvency occurs when a company can't pay its debts, but its liabilities aren't necessarily greater than its assets. Accounting insolvency occurs when a company's liabilities are greater than its total assets.
What happens when you go into insolvency? ›At this stage, an insolvency practitioner (IP) is usually appointed. It's their job to liquidate the business by selling off all assets, and settle any debts to the best of their ability. This might mean that, if someone owes you money, that you'll not get the full amount back.
Who decides insolvency? ›Ans: National Company Law Tribunal, having territorial jurisdiction over the place where the registered office of the corporate person is located serves as the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons.
How long does insolvency last? ›Normally, you'll be discharged from bankruptcy after 12 months, on the first anniversary of the date the bankruptcy order was made. In some cases you might be discharged later. This is called 'delayed discharge'.
What comes after insolvency? ›Once all the assets are sold and the company is closed down, it will be struck off the Companies House register. After the liquidation process, the liquidators will conduct an investigation to determine whether the directors were guilty of any wrongful or fraudulent trading whilst the company was insolvent.
What are the methods of solving insolvency? ›The following options are available: a judicial procedure aimed at the rehabilitation or reorganization of the company to permit its continued operation; a judicial procedure aimed at the liquidation or winding-up of the company; or a judicial debt enforcement procedure (foreclosure or receivership) against the company ...
What is an insolvency solution? ›Insolvency means you cannot afford to pay your debts in a reasonable amount of time. There are many debt solutions you can choose if you are insolvent. These are legally binding, which means: They give you protection from the people you owe. They can write off some or all of your debts.
How can you reduce the risk of insolvency? ›- Invoicing promptly;
- Negotiating regular, stable payments from long-term clients;
- Recovering debts owed to you;
- Not letting unpaid bills linger.
- Apply for Proof of Discharge. ...
- Understand Why You Declared Bankruptcy. ...
- Find Employment and a Home. ...
- Make a Financial Plan. ...
- Pay Your Bills. ...
- Rebuild Your Credit Rating. ...
- Stick Within Your Means.