Your company may be facing financial difficulty through no fault of your own. A large debt may have to be written off due to that customer becoming insolvent, or you may have faced significant disruption to trade through external factors.
 
A company is classified as insolvent when it cannot pay its debts as and when they become due and payable. There are serious penalties for Directors that allow their companies to trade while insolvent. So, if your company is in financial distress, we encourage you to reach out, understand your options and act fast.
 
Creditors Voluntary Liquidation
 
When your company is insolvent and you wish to wind up your company, you would appoint a Liquidator. The role of the liquidator is to do everything necessary to recover property of the company for the benefit of creditors.
 
Outstanding creditor debts will be paid from the proceeds of the company’s property in accordance with the requirements of the Corporations Act 2001. The Liquidator must also review the company’s financial affairs and report any offences under the Act to ASIC. 
 
Upon finalisation of a liquidation, the company will be deregistered by ASIC.
 
Simplified Liquidation
 
The simplified liquidation process is designed to make the costs of liquidating your company more affordable.
To be eligible to adopt the simplified liquidation process:

• there must be insufficient assets to pay creditors’ debts in full within 12 months of the appointment of the Liquidator
• debts owing to your creditors must be less than $1 millionyour company and its associated director/s must not have adopted a small business restructure or had another entity subject to a simplified liquidation in the past seven years
• all tax lodgements must have been completed and be up to date (but it is not a requirement all tax debts be paid up to date).

There is an onus on you as the director to sign a declaration that your company is eligible for the simplified liquidation process.
 
Voluntary Administration & DOCA
 
If your business is insolvent or likely to become insolvent, you can voluntarily appoint an administrator to take control of your business.
 
During the voluntary administration period, the administrator may continue to trade the business. They will also examine your financials to provide creditors with the necessary information to decide the long-term future of your business. 
 
The process grants temporary relief from recovery action while a restructuring proposal is formulated. The process provides some protection from recovery actions against personal guarantees, insolvent trading and potentially Director Penalty Notices that you may have received from the Australian Taxation Office.
 
A Voluntary Administration ends when the creditors vote on its future. The creditors have three choices:

• accepting a Deed of Company Arrangement (DOCA)
• placing the company into liquidation
• handing the business back to you (although this option is rare). 

Deed of Company Arrangement
 
A DOCA provides the business and its creditors a level of certainty about the future.
 
A DOCA is a binding agreement with creditors which may compromise and settle debts your business owes i.e. your creditors are repaid on a ‘cents in the dollar’ basis. A DOCA can also buy time for the repayment of debts to your creditors.
 
During the term of a DOCA, the company must execute the promises made to creditors, whilst being monitored by a Deed Administrator.

Small Business Restructuring (SBR)
 
This service is targeted towards smaller businesses. It can provide valuable relief and assist with the restructuring and emergence of a viable business while allowing directors to stay in control of the day to day operations of the company.
 
The process is similar to the VA and DOCA processes above, but you retain control of the business. The appointed Small Business Restructuring Practitioner (SBRP) advises and assists you through the process and will liaise with the creditors.
 
For your company to be eligible:

• it must be insolvent
• it must have debts owing of less than $1million, and
• the company or its associated director/s must not have undertaken a SBR or undertaken a simplified liquidation (please see above) in the seven years prior, and
• all taxation lodgements, including BAS, are up to date and all employee entitlements that are due and payable are paid up to date.

Whether its bankruptcy or proposing alternate solutions to your creditors, our Deloitte Personal Insolvency team will work commercially and sensitively to build recommendations for your situation, and develop a process focused on minimal damage to you and creditors within the complex constraints of the Bankruptcy Act.
 
Seeking guidance from Deloitte specialists skilled in personal insolvency matters, across a range of industries, is the first proactive step in responding to your circumstances, understanding your options, and building a plan for achieving the most long-term sustainable success for you and your family.
 
Bankruptcy
 
Bankruptcy is a legal process where you're declared unable to pay your debts. It can release you from most debts, relieve financial burdens and stresses and allow you to make a fresh start.
 
You can enter into voluntary bankruptcy. To do this you need to complete and submit a Bankruptcy Form. It's also possible that someone you owe money to (a creditor) can make you bankrupt through a court process. We refer to this as a sequestration order.
 
Bankruptcy normally lasts for 3 years and 1 day.
 
Personal Insolvency Agreement (Part X)
 
A personal insolvency agreement (PIA) is one of two agreement options available. A PIA, also known as a Part X (10), is a legally binding agreement between you and your creditors.
 
A PIA can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.
 
A personal insolvency agreement involves:

• The appointment of a trustee to take control of your property and make an offer to your creditors
• The offer may be to pay part or all of your debts by instalments or a lump sum. 

Creditor Advisory Services
 
Creditors of companies in distress often need specialised external support and counsel to resolve their issues while minimising losses and maximising value.
 
We combine operational and financial experience with deep industry knowledge and global capabilities to provide clients with the specialised creditor advisory support they need to optimise the recovery of the situation and their debt.
 
Deloitte Turnaround & Restructuring professionals provide a reliable assessment of the situation informed by our extensive experience leading stressed or challenged organisations through critical turnaround, corporate recovery, or potential insolvency situations. We are a trusted and experienced team who understands the situation intimately and aims to maximize creditor recoveries.
 
Key areas of focus for Creditor Advisory services include:

• Liquidity in both the short term and long term
• Business plan feasibility from an operational and financial perspective
• Debt restructuring alternatives
• Capital structure improvement opportunities
• Macroeconomic and microeconomic challenges
• Industry trends and growth challenges
• Corporate finance/M&A potential alternatives
• Global tax optimization components of any of our solutions 

How we can help you capture otherwise lost value:

• Offer representation at creditor meetings
• Help you understand your rights as a creditor when your customers are in liquidation/administration, and how much you can collect
• Enforce your creditor rights and defend claims from Liquidators for voidable transactions
• Manage collections of monies owed to you by distressed or insolvent customers, whilst balancing the risk of claw-back from Liquidators
• Undertake counterparty and supply chain risk assessments for larger contracts or customers

When a company is experiencing early signs of distress, our strategy-led approach is key to evaluating core issues adversely affecting performance and assessing strategic alternatives to insolvency. We develop and execute comprehensive plans to address challenges and help you take advantage of existing opportunities. Our Deloitte team will work closely with you to resolve issues affecting profitability & set you up for future growth.
 
Our offerings in this space include financial Restructuring advice, Value Creation Services and Safe Harbour protections.

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