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

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.

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.

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.

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.

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.

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

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.

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.

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.

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.