Before we delve into the topic of pre insolvency advice, let us first understand which field of law this matter falls under. First and foremost, pre insolvency advice is related to businesses and falls under corporate law.
Notably, the term insolvency refers to a state of being unable to pay off debts. People as well as companies can face insolvency issues alike and they are termed as insolvent.
Additionally, insolvent people or companies are unable to fulfil their financial obligations. They are unable to pay off debts when they are due. Insolvency can be known as bankruptcy, and the two terms are used interchangeably.
Lawyers or insolvency practitioners offer pre insolvency advice to insolvent people or companies. Corporate lawyers are professionals who can provide pre insolvency advice to companies and/or people. They can help them navigate through this difficult period of time.
Key Terms Related To Insolvency
Before obtaining pre insolvency advice, you will need to have an understanding of some key terms associated with this topic. In this paragraph, there is a brief definition of some important terms:
People or companies owe money to creditors. For instance, creditors could be those who have given loans, or those who have provided some service or goods.
Moreover, insolvent companies and/or people are also known as debtors.
Lastly, bankruptcy is the process through which individuals give up their assets in exchange for protection from legal action by creditors.
Insolvency: Legal Framework
Importantly, insolvency can be understood within a legal context. These processes allow debtors and creditors to make financial agreements and sort out financial matters. As a result, both parties are given an opportunity to take part in a fair process.
Insolvency ensures that:
- Both, debtors and creditors, are able to participate in a process to sort out financial matters in a way that is timely and cost-effective;
- All creditors receive equal proceeds from any property that the debtor has recovered;
- Debtors are able to repay creditors from their property;
- Debtors are prosecuted if they have broken any laws;
- Some opportunities are provided to struggling businesses to continue operations; and
- Debtors get help to pay off debts.
Pre Insolvency Advice: What Are The Types Of Insolvency
As discussed above, both people and companies can become insolvent. Depending on this, there are different types of insolvency. Broadly, the two types are personal insolvency and corporate insolvency.
As the name suggests, personal insolvency is related to individuals. Examples include:
- Debt agreement;
- Personal insolvency agreement.
In Australia, the Bankruptcy Regulations 2021 and the Insolvency Practice Rules (Bankruptcy) 2016 provide framework on personal insolvency. Moreover, the Australian Financial Security Authority (AFSA) regulated personal insolvency in the country.
On the other hand, corporate insolvency is related to companies. Examples include:
- Voluntary administration.
Liquidation refers to shutting down the company. A company may choose to close its business and distribute assets to claimants. Many companies that are insolvent opt for liquidation.
However, sometimes companies engage in “illegal phoenix activity.” This happens when companies choose liquidation simply to above paying outstanding debts. Following this, the people involved start a new company without paying off debts of the old one.
Moreover, this is illegal and has many negative consequences such as employees losing wages, and contractors being left unpaid.
Notably, a company that is facing financial difficulty can be rescued through the process of voluntary administration. A voluntary administrator will take care of the affairs of the company and will be in control for all financial matters of the company until the creditors make their decisions.
The Australian Securities and Investments Commission (ASIC) regulates corporate insolvency in the country.
What Advice Will Individuals Need?
Individuals will require pre insolvency advice to help them with bankruptcy. JB Solicitors can help in this regard in the following ways:
- Assist with understanding rights and obligations in case individuals have been served with a bankruptcy notice.
- Check the validity of the bankruptcy notice.
- Help individuals know their rights if they have been served with a creditor’s petition.
- Negotiate settlements with creditors.
- Look for other options apart from bankruptcy – these include Personal Insolvency Agreement or Debt Agreement.
- Inform people about their rights and obligations if they have entered into any sort of agreement.
- Help people understand their obligations if they are considering a debtor’s petition.
What Advice Will Companies Need?
Firstly, companies will need pre insolvency advice on the liquidation process. Solicitors can help companies to analyse any risks associated with liquidation process.
Secondly, solicitors will have detailed discussions with the company to make the most suitable plan of action. Solicitors will provide guidance through the process of liquidation.
It is important to beware of fraud advisers. Often, some advisers approach directors of companies on the pretext of providing guidance with bankruptcy. However, there have been many cases wherein insolvency advisers engaging in fraudulent behaviour. Therefore, it is very important to be alert and steer clear of such bogus advisers.
Pre Insolvency Advice From JB Solicitors
JB Solicitors’ corporate lawyers are experts in providing advice to insolvent companies regarding the liquidation process. Our corporate lawyers have the experience of working with large Australian businesses as well as small business and companies.
At JB Solicitors, the lawyers have a wealth of experience in dealing with a variety of matters falling under corporate law. Gaining advice for matters related to debt and insolvency is crucial.
Besides, if individuals or companies do not get proper advice, they will face detrimental impacts. Losing a company or business can cause significant financial losses in a person’s life.
More importantly, it also causes significant mental stress and anxiety to the person. This is why it is essential for people to seek advice from trustworthy lawyers.
We value transparency and offer fixed-fee services for many bankruptcy and insolvency services. Moreover, we give our clients a clear sense of legal costs from the get go.
For more information on how we can offer help, please do not hesitate to contact our friendly solicitors today.
Get in touch with JB Solicitors.