What Are Insolvencies in Australian Law?
Whether you’re a debtor or a creditor, you should know that there are two different kinds of insolvencies in Australian law. These are secured debt and unsecured debt. Both of these types can cause you to be held responsible for a debt and require the help of an insolvency professional such as lawyers specialising in insolvency.
During a corporate insolvency, holding a creditors meeting is the primary mechanism through which creditors exercise their rights. The process is governed by numerous sections of the Corporations Act 2001. Listed below are some of the key requirements that must be met.
The first creditors’ meeting must be held within eight working days after the administrator has been appointed. The notice of the meeting must be published in a local newspaper. It must also disclose the relationship between the administrator and the creditors.
If the creditors are not present, the meeting will be adjourned to the next business day. Creditors can also appoint a proxy to attend and vote. However, they must ensure that the proxy is knowledgeable and will follow the rules of the meeting.
A meeting of creditors can be called by an independent liquidator, or by a court liquidator. A registered liquidator will take charge of the assets of a company, and distribute the net proceeds to creditors. The liquidator must report to the Australian Securities and Investments Commission (ASIC) on the company’s affairs.
funding insolvency professionals
Using a new, large data set of de-identified bankruptcies, the Australian Financial Security Authority has revealed some fascinating insights into the Australian personal insolvency system. These findings will be of particular interest to insolvency practitioners, consumers and researchers.
The most common applicant is the company itself. The research team has undertaken a range of empirical studies including a comprehensive empirical survey of debtors, and focus groups with financial counsellors and advocacy groups. They also reviewed existing empirical research on bankruptcy.
The most impressive of these findings is the number of people who have made the effort to file for bankruptcy. This figure is estimated to be around a third of the Australian population. The statistics gathered indicate that Australia is experiencing a financial stress epidemic. This is not limited to lower income earners, but is also a significant problem among the middle class.
The Small Business, Enterprise and Employment Act 2015 permits insolvency practitioners to sell officeholder claims. This type of claim purchase will likely benefit both the litigation funder and the insolvency practitioner.
secured debt vs unsecured debt
Compared to corporate insolvency, there are not a lot of options for unsecured creditors in the Australian context. This is mainly because the Australian government has opted to put in place legislation to assist small businesses in times of financial stress. However, this has not been the case for government owned enterprises.
The main federal government legislation is the Corporations Act 2001 (Cth) which regulates the liquidation of insolvent corporations and reorganisation of Australian companies. This act is not limited to Australian companies but also applies to foreign companies that are doing business in Australia. It is also worth noting that the federal government estimates that 76% of businesses are currently subject to insolvencies.
The main function of the Corporations Act is to wind up insolvent corporations and ensure the equitable distribution of their assets. In the event of a company becoming insolvent, a court will order a compulsory liquidation and a receiver will be appointed to realise the assets. A receiver’s job is to reduce the amount of secured debt.
Australian government agencies and insolvency
During COVID-19 and 2020, the federal government injected an unprecedented level of stimulus into the Australian economy. This has been accompanied by a range of reforms designed to support small businesses and address some of the complexities and uncertainties surrounding insolvency. This has resulted in an Insolvency Inquiry, which will consider corporate insolvency matters and the effectiveness of the corporate insolvency laws in Australia. The Inquiry was announced after the Morrison Government reviewed the safe harbour protections provided to directors of companies that have become insolvent.
The review prompted the PJC to call for an in-depth look at the corporate insolvency regime. This will be the first major review of the corporate insolvency regime in 30 years. In announcing the Inquiry, the panel outlined a broad scope of inquiry and said that the purpose of the inquiry was to look at the state of the corporate insolvency regime and identify potential areas of reform. The Panel intends to table a report on the inquiry by 30 May 2023.Bartier Perry Lawyers