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Restructuring and insolvency law governs the legal processes that individuals and businesses follow when they cannot meet their financial obligations. In Sydney, as in the rest of Australia, these laws are designed to help businesses in financial distress recover or, if recovery is not possible, to manage an orderly closure. Restructuring focuses on helping companies reorganise their operations, debts, and structures to improve financial health, while insolvency covers situations where debts cannot be paid and may lead to liquidation or bankruptcy. These laws aim to protect creditors, debtors, employees, and the broader economy by providing clear processes for managing financial difficulty.
Legal advice is crucial when facing restructuring or insolvency issues, as the decisions made can have long-lasting personal and financial consequences. Common situations where a lawyer can assist include:
Having a qualified legal adviser ensures you understand your rights and obligations, minimises personal risk, and helps you make informed choices about the future of your business or personal finances.
Australia’s restructuring and insolvency laws are primarily governed by the Corporations Act 2001 for companies and the Bankruptcy Act 1966 for individuals. In Sydney, these laws are administered through federal courts but local expertise remains essential, as factors such as the jurisdiction of the New South Wales Supreme Court and the presence of local insolvency practitioners can impact proceedings.
Key features include:
Directors and business owners in Sydney must be aware of strict obligations and timelines involved in these processes. Timely legal advice helps ensure compliance and protects against personal liability.
Restructuring involves reorganising a company’s affairs, debts, or structure to improve financial stability. Insolvency means a person or business cannot pay its debts when they are due, often triggering legal processes such as bankruptcy or liquidation.
Your company may be insolvent if it cannot pay its debts as they fall due. Warning signs include ongoing losses, unpaid taxes, mounting creditor demands, and constant use of overdraft facilities.
Company directors who allow insolvent trading may be personally liable for company debts. This is a serious breach of the Corporations Act and can lead to civil or criminal penalties.
Options include voluntary administration, entering into a Deed of Company Arrangement (DOCA), negotiating with creditors, or informal workouts. Legal and accounting advice should be sought before proceeding.
Voluntary administration is a process where an insolvency practitioner temporarily manages the company’s affairs to assess whether it can continue, be restructured, or should be liquidated. It provides breathing space from creditors.
Employee entitlements, such as unpaid wages, leave, and redundancy, are prioritised but may not always be paid in full if there are insufficient funds. The government’s Fair Entitlements Guarantee scheme may assist eligible employees.
Alternatives to bankruptcy include debt agreements, personal insolvency agreements, or negotiating payment plans with creditors. Legal advice is vital to understand all available options.
A bankruptcy trustee can take control of your assets, except for essentials such as some household goods, tools of trade up to a certain value, and a car up to a value limit. Luxury items and property may be sold to pay creditors.
Safe Harbour protects directors from personal liability for insolvent trading if they are actively developing and implementing a plan for restructuring the company to improve its financial position.
While some processes can be started without a lawyer, restructuring and insolvency are complex areas. Legal advice ensures your rights and obligations are protected, reduces risk, and helps you navigate negotiations or court processes successfully.
Several organisations and government bodies provide information, assistance, and support in restructuring and insolvency matters in Sydney:
If you are facing financial difficulties as an individual or business in Sydney, it is important to seek advice early. Here are steps you can take:
Taking timely and informed action with the right legal support can help you manage financial risks, protect your interests, and achieve the best possible outcome.
