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Newsletter 2
Practice Note: 25/06/2021

Insolvent director and insolvent company with assets

When the sole director of a company is insolvent and the insolvent company has sufficient assets to fund the cost of liquidation, the director should place the company into liquidation prior to filing for bankruptcy.

REASON: A director is disqualified from being a director once bankrupt and then has no legal ability to place the company into liquidation.

  • Source a competent liquidator who can assist the director to put the company into liquidation.
  • Confirm with the proposed liquidator that director is not required to provide monies towards cost of liquidation. If the liquidator requires funds, the director should find an alternative liquidator or abort and follow our Practice Note of 01/06/2021 for deregistration of the company without sufficient funds for liquidation.
  • On the basis that the company can be liquidated without the director being required to provide funds, process the paperwork provided by the liquidator, to place the company into liquidation.
  • Once the company is in liquidation, the director can then proceed to prepare and lodge paperwork for bankruptcy.

QUICK TIP: Section 206B (3) & (4) of the Corporations Act 2001 disqualifies a bankrupt person and a person subject to a Personal Insolvency Agreement (PIA) from being a director of a company.

COMMENT: Once no longer bankrupt or subject to a PIA, the former company director is normally automatically restored to being eligible to be a director of a company.

COMMENT: An insolvent director borrowing money to fund the cost of liquidating a company has inherent risk for the director.