A company becomes insolvent when it is unable to pay any debts that are due. There is plenty of important information that you need to be aware of if you are an employee, a customer, shareholder, investor or creditor of an insolvent company.
The company’s director or a creditor might decide to appoint an external administrator if the company is experiencing financial difficulty. It is the external administrator’s duty to take control of the business so that its affairs administrated in a way that is fair and benefits the creditors.
It is important to note that the amount of money you will get back from the company will be dependent on how much an external administrator is able to recover from finding and then selling the assets of the company.
It is important to note that, the exact amount of money you will be able to get back from the company will be dependent on how much money an external administrator can recover when finding and selling the company’s assets.
A business owner can also close their company by deciding to simply stop trading or by transferring the business over to another company. This is commonly referred to as phoenix activity.
ASIC outlines that this is an unacceptable way to close a business, especially if it means that employees and creditors are not paid and the affairs of the company have not been dealt with properly prior to the closure of the business.
It is important to understand that ASIC is unable to act on behalf of an individual creditor, however ASIC does work to help protect the interests of all creditors by doing the following things;
By registering external administrators and receivers by making sure that they comply with the law supervising registered liquidators, by supervising the registered liquidations, by sharing up to date information about the insolvent company on the ASIC website and enforcing insolvency reforms and initiatives.
Important Information for Employees Who Are Owed Money by Insolvent Company
For an employee who is owed money by the insolvent company for your unpaid wages or other kinds of entitlements you are labelled as an unsecured creditor. Employees are listed as a special type of unsecured creditor and will therefore be paid for your entitlements and unpaid wages before other unsecured creditors are paid that money that is owed to them.
Important Information For Customers Who Are Owed Money By Insolvent Company
If you are a customer who has paid for a product that you have failed to receive or you have paid a deposit or have a credit note or a gift card from a company that is insolvent, it is potentially likely that you might be owed money from this company.
To check whether you are owed money by an insolvent company, you need to check first of all if the company has been listed as insolvent on the ASIC Published Notices website and has had an administrator appointed to handle the insolvency process. If both of these requirements are met than you as a customer will be able to register as an unsecured creditor. Once the insolvency process is undertaken you will find out if you are entitled to receive a refund.
If you are a customer who currently has an unused gift card from a company that is insolvent or you have paid a deposit via a credit card to an insolvent company you might be eligible to receive chargeback rights.
Having chargeback rights means that you might be able to get your money back from your credit card issuer. You can contact your credit card issuer to find out the conditions and time limits associated with making a claim to receive a chargeback.
Important Information For Other Companies Who Are Owed Money By Insolvent Company
If you have any concerns that a company you are dealing with is at risk of becoming insolvent and experiencing financial difficulty you need to look out for the warning signs. These warning signs associated with financial difficulty might include things such as; paying invoices late, the have their payments made to you dishonoured or are having problems with issuing post-dated cheques.
If any discussions you have with the company result in being unable to resolve any problems you have, than your next option would be to review any ongoing trade agreements you have with this company and to make sure that you seek legal advice to help protect yourself.
If you think a company has been deliberately liquidated for the purpose of avoiding to pay any outstanding debts than you must report the company to the Australian Tax Office (ATO). This type of activity is known as illegal phoenix activity and is taken very seriously by the ATO.
You can also make a complaint to the Australian Financial Security Authority (AFSA) if you are dealing with an insolvent business who acts as a sole trader or is not a registered company.