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25 Bankruptcy and Insolvency © Oxford University Press, 2007. All rights reserved.

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Presentation on theme: "25 Bankruptcy and Insolvency © Oxford University Press, 2007. All rights reserved."— Presentation transcript:

1 25 Bankruptcy and Insolvency © Oxford University Press, All rights reserved.

2 Bankruptcy and Insolvency Meaning of personal bankruptcy: a person’s inability to pay their debts as and when they fall due from their own money distinguish between two types of bankruptcy: (i) voluntary (ii) involuntary.

3 Bankruptcy & Insolvency cont… purposes of bankruptcy effects of bankruptcy The trustee in bankruptcy: person responsible for administering estate of bankrupt note powers and duties of trustee.

4 Bankruptcy & Insolvency cont… Meaning of corporate insolvency: a company’s inability to pay its debts as and when they fall due company’s financial position as a whole relevant only ASIC can de-register company however insolvency one of the main causes leading to this outcome.

5 Bankruptcy & Insolvency cont… Directors’ duty to prevent insolvent trading: s 588G Corporations Act: person is director when the company incurs debt company is insolvent reasonable grounds for suspecting insolvency awareness of such grounds, and person fails to prevent company from incurring the debt.

6 Bankruptcy & Insolvency cont… Consequences of breach: director personally liable Defences available under s 588H: reasonable grounds for expectation of solvency; expectation of solvency due to information supplied by subordinate; director unable to take part in management; or director took reasonable steps to prevent debt.

7 Bankruptcy & Insolvency cont… Three main forms of external administration: receivership voluntary administration winding up by liquidator Creditors’ schemes of arrangement not popular.

8 Bankruptcy & Insolvency cont… Receivership: purpose: to protect interests of secured creditor appointment of receiver: usually by bank or other secured creditor note powers, duties and liabilities of receiver.

9 Bankruptcy & Insolvency cont… Voluntary administration: purpose: to ascertain whether it is possible for company to trade out of its difficulties appointment of administrator: by directors, a liquidator or a major secured creditor note powers, duties and liabilities of administrator.

10 Bankruptcy & Insolvency cont… Liquidation (winding up): purpose: to maximise returns for unsecured creditors after winding up, ASIC de-registers company appointment of liquidator: (i)voluntary liquidation: by members or creditors (ii)compulsory liquidation: by the court note powers, duties & liabilities of liquidator.

11 Bankruptcy & Insolvency cont… Priority of payment on winding up: After secured creditors satisfied, liquidator must distribute funds as follows: expenses involved in winding up wages & other employee entitlements unsecured (trade) creditors members. Refer to Sons of Gwalia Ltd v Margaretic.


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