Personal bankruptcy as a company director

Persons who need bankruptcy do not need to fund the cost of liquidating their company

Where a company becomes insolvent and the sole director needs to file for bankruptcy, the director should assess the financial position of the company before acting. This is important as there are timing issues the director needs to be aware of which impact what the director does.

Section 206B of the Corporations Act 2001 disqualifies a bankrupt person from being a director of a company.

QUICK TIP: Once bankrupt, the director of a company can ceases being director by lodging Form 296 with ASIC. There is no lodgement fee and the completed form is mailed to ASIC at their address shown on the bottom of Form 296.

If the insolvent company has assets sufficient to fund the cost of liquidation, the director should place the company into liquidation prior to filing for bankruptcy. Once bankrupt the director is disqualified from being a director of a company pursuant to Section 206B of the Corporations Act 2001 and has no capacity to put the company into liquidation.

If the insolvent company has no or little assets, the insolvent director does not need to borrow money from family to put the company into liquidation. The director can file for bankruptcy without regard to company. Upon becoming bankrupt the director lodges Form 296 with ASIC. When ASIC receive this form, ASIC will remove the person from being a director of the company and then deregister the company as a director less company. If the company has any nominal assets they will vest in the Commonwealth.

In the case where a creditor wants the asset less company placed into liquidation, the creditor can apply to the Supreme Court for the company to be reinstated and placed into liquidation.
We trust this blog has assisted you. This blog is provided as general information only and is not advice. If you have any questions pertaining to one of your clients, please give us a call on 1300 060 122 or email helpdesk@nichollsco.com.au

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