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Restructuring and insolvency law in Australia governs the processes that individuals and businesses follow when they face financial hardship, are unable to pay their debts, or need to reorganize their affairs. These laws provide structured mechanisms to ensure fair outcomes for all parties involved, including creditors, debtors, employees, and shareholders. Australia's insolvency framework encourages the rescue and rehabilitation of viable businesses while allowing unviable businesses to wind down efficiently.
The main objectives of restructuring and insolvency law are to maximize returns to creditors, provide relief to honest but unfortunate debtors, and foster economic stability. The legal processes involved may include voluntary administration, liquidation, bankruptcy for individuals, and schemes of arrangement. The legislative framework is primarily found in the Corporations Act 2001 for corporate insolvency and the Bankruptcy Act 1966 for individual insolvency.
Restructuring and insolvency scenarios are complex and involve significant legal, financial, and strategic decisions. Engaging a lawyer can help you:
Restructuring and insolvency law in Australia is primarily governed by federal legislation, including:
Directors have strict obligations not to trade while insolvent. There are also safe harbor protections for directors who pursue genuine restructuring efforts. Creditors have rights to initiate insolvency proceedings if debts remain unpaid. The law provides different processes, including simplified liquidation and restructuring processes for small businesses. Australian courts, the Australian Securities and Investments Commission (ASIC), and the Australian Financial Security Authority (AFSA) play key regulatory and supervisory roles.
Restructuring refers to the process of reorganizing a business's financial and operational structure, often to avoid formal insolvency. Insolvency is the state where an individual or company cannot pay its debts as they fall due, often resulting in formal procedures like bankruptcy or liquidation.
Options include negotiating informally with creditors, entering voluntary administration, restructuring under a deed of company arrangement, considering safe harbor protections, or proceeding to liquidation if the company cannot be saved.
Voluntary administration is a process where an insolvent company appoints an external administrator to take control, assess the company’s affairs, and recommend the best course of action, whether that is restructuring or winding up.
Employee entitlements are typically given priority in a liquidation, and the Fair Entitlements Guarantee (FEG) scheme may assist employees of eligible businesses who cannot recover their entitlements from the liquidation.
Generally, company directors are not personally liable for company debts, but there are exceptions, such as cases of insolvent trading, unpaid superannuation, or personal guarantees.
Bankruptcy is the legal process where an individual is declared unable to pay their debts. In most cases, bankruptcy lasts three years and one day, after which the individual is discharged, though some obligations can last longer.
Formal insolvency processes such as voluntary administration or bankruptcy generally provide a moratorium, temporarily stopping creditors from taking enforcement action while the process is ongoing.
Directors must prevent insolvent trading, act in good faith, keep proper records, and act in the best interests of the company, especially when insolvency is imminent.
Funds realized from asset sales are distributed according to legal priority. Secured creditors are generally paid first, followed by certain employee entitlements, and then unsecured creditors. Any remaining funds go to shareholders.
Yes, both personal bankruptcy and company insolvency activity are recorded on credit reports and public registers for several years, impacting future access to credit.
For more information or help with restructuring and insolvency in Australia, the following resources can be helpful:
If you believe you or your business are facing financial distress or at risk of insolvency, consider the following steps:
Prompt, informed action increases the likelihood of a better outcome for you, your business, and all stakeholders. If in any doubt about your situation or obligations, legal advice is crucial.
