Company Bankruptcies Australia

No. However, if the company director places the company into liquidation and is personally liable for overwhelming company debt, bankruptcy may be a good option. A director will be liable for company debts guaranteed in writing, insolvent trading debts accumulated by the company, and potentially monies the company owes the ATO for GST, group tax and statutory superannuation for its employees.

The Bankruptcy Act does not differentiate between personal and business debt. All debt goes into the one pot. All debt caught by your bankruptcy is permanently gone.

If your company is struggling and it can’t pay its debts, you may need to consider liquidation. Company liquidation causes the appointment of a Liquidator. The liquidator replaces the company director(s). The Liquidator has the power to deal with the company and its assets while the director has no involvement. The liquidator sells all of the company’s assets so that sale proceeds can be used for full or part payment to creditors. Liquidation also stops creditors from pursuing any debt owed by the company. The money creditors receive from the liquidation depends on the amount the liquidator is able to sell the company’s assets for and the creditors ranking. Creditors are repaid according to their ranking – with priority creditors like employees getting top priority followed by ordinary unsecured creditors like trade creditors, and shareholders if there is anything remaining after the company’s creditors have been paid. However if a creditor is not repaid from the liquidation it is worth mentioning that liquidation does not stop any existing personal guarantees that have been made by directors or shareholders in relation to business loans or other financial obligations of the company.

It is imperative to be aware that when a company goes into liquidation, the debts related to it may not necessarily be erased and the director may be chased for some of the company’s debts. Australia’s own Securities and Investments Commission (ASIC) has clarified that directors can become personally responsible for such obligations – especially if they are not meeting their obligations as directors. This could result in the director needing to consider bankruptcy, due to creditors pursuing them for payment, seizing assets or ASIC taking action against the individual for misdemeanours like trading inappropriately or carelessness. To prevent financial distress, those managing a company must adhere to the stipulations of the Corporations Act 2001. With Liquidations, all creditors are repaid according to their ranking – with priority creditors like employees getting top priority followed by ordinary unsecured creditors like trade creditors, and shareholders if there is anything remaining after the company’s creditors have been paid. However, if a director has offered personal guarantees or been careless while trading, they may become personally liable for any outstanding debt based on the individual’s circumstances. Although bankruptcy is not inevitable upon company liquidation, it is still possible depending on how much debt was amassed during business operations and if personal guarantee had been given alongside other factors such as insolvent trading or irresponsible conduct of directors or failure of the company to ensure tax lodgements within required timelines may cause the need for the director to enter bankruptcy.