Corporate insolvency: your options and your exposure
We tell you whether the company is insolvent, what that means for you personally, and which options are still open.Your company is a separate legal person right up until the point it cannot pay its debts. After that, the decisions you make as a director start attaching to you. Every week you keep trading in hope can add to your own exposure and close off an option that was open a month ago. Under the Corporations Act 2001 (Cth) (the Act), that exposure runs from the moment you ought to have suspected insolvency, not from the moment somebody told you. So the first question is not which process to use. It is where the company actually sits today.
A date, not a feeling
You get an estimated date of insolvency, which is the fact that decides how far your personal exposure reaches.
Exposure you can still limit
Knowing where the liability starts is what lets you stop adding to it.
A pathway chosen, not defaulted into
You pick the process while more than one is still available to you.
What does it mean for a company to be insolvent?
A company is insolvent when it cannot pay its debts as and when they fall due. That is a cash flow test rather than a balance sheet one, so a company with more assets than liabilities is still insolvent if it cannot turn those assets into cash by the time the money is owed. Once that line is crossed, the Act puts obligations on directors personally, and the formal options (voluntary administration, a deed of company arrangement, a creditors’ voluntary winding up, or a court-ordered liquidation) each end somewhere different for the company, its creditors and the people who ran it.
When is a company legally insolvent?
A company is insolvent when it cannot pay its debts as and when they fall due. The test in the Act is about cash flow, not the balance sheet. A company holding more assets than liabilities is still insolvent if those assets cannot be converted to cash in time to pay what is owed. If you have any real doubt, that is the point to get advice rather than the point to wait.
Can I be made personally liable for the company's debts?
Yes, for debts the company incurred while it was insolvent. The liability runs from the moment you knew or ought reasonably to have suspected insolvency, not from the moment you were told. That is why the date matters so much. There are defences, and they are far easier to run when you took advice early and acted on it.
What is the difference between voluntary administration and liquidation?
Voluntary administration pauses creditor action and puts a proposal to creditors about the company’s future, so the trading business can sometimes survive through a deed of company arrangement. Liquidation winds the company up and distributes what can be realised. Administration only works while there is something left to restructure, which is usually the reason it stops being an option.
Should I just let the company be wound up?
Sometimes that is the right answer, but it should be a decision rather than a default. Winding up does not end a director’s exposure for debts already incurred, and a liquidator will look at transactions in the period before the appointment. Getting advice first tells you what follows you afterwards.
How close to the line is the company?
Send us the last two quarters of figures and your creditor list. We will tell you where the company sits against the cash flow test, roughly when your own exposure would have started, and which pathways are still open to you.
You are still trading, which means you are still deciding
You can see the company is in trouble but you cannot tell whether it has crossed into insolvency, and that single question decides whether the next invoice you approve is the company’s problem or yours. So you do nothing, because moving early might destroy a business that could still recover and moving late might cost you your house. The uncertainty is doing more damage than either decision would.
- We will assess the company's solvency against the cash flow test and tell you when the line was crossed.
- We will advise you on your personal exposure for insolvent trading and what limits it from here.
- We will compare the available pathways against your circumstances and recommend one.
- We will help you appoint the right practitioner and keep the formal process moving.
- We will act for you as a creditor of an insolvent company where that is your position.
The numbers stopped agreeing with you months ago
You are a director of a company that has been losing ground for a while. A large customer has not paid, your trade creditors have stopped waiting politely, and the bank has started asking questions about the facility. You have always believed the business was viable, and on most days you still do. What you cannot answer is whether you are already personally exposed, what the options actually are, and whether there is a version of this where the business, or some part of it, survives.
What's included in your corporate insolvency advice service
- Solvency assessment against the cash flow test, with an estimated date of insolvency.
- Director exposure review and insolvent trading advice.
- Voluntary administration and deed of company arrangement options analysis.
- Practitioner appointment and process management.
- Creditor rights advice and representation through the formal process.
What waiting costs a director
Insolvent trading liability does not start when your accountant raises it. It starts at the point you ought reasonably to have suspected the company could not pay, which means the months you spent hoping are usually inside the exposure period, not outside it. While that accrues, the assets that might have funded a restructure are consumed paying the creditors who shout loudest, which is itself a preference a liquidator can later claw back.
By the time a director finally takes advice, voluntary administration is often no longer viable because there is nothing left to put to creditors. What was a choice between several pathways has become one pathway, chosen by the calendar. The director then defends an insolvent trading claim from a much weaker position than the one they held a year earlier, when the only thing missing was a solvency answer.
From guessing to knowing where you stand
We start with the fact you actually need, which is whether the company is insolvent and, if so, roughly when it became so. That answer sets the boundary of your personal exposure and tells you which options remain, and it is not a question you can safely answer from the bank balance.
From there we map the pathways against your circumstances rather than in the abstract: what voluntary administration would do to the trading business, whether there is a deed of company arrangement worth putting to creditors, what a creditors’ voluntary winding up means for you as a director afterwards. We tell you what each one does to the people involved, not just how it works. If an appointment is needed we help you engage the right practitioner and keep the process moving, and if a restructure is realistic we help you build the proposal that makes creditors say yes.
How we get you to a decision
From an honest solvency answer to a pathway you chose on purpose.Answer the solvency question
We review the financial records and creditor position and tell you whether the company is insolvent and approximately when it became so.
Map your exposure
We advise on what you are personally on the hook for, what still adds to it, and what limits it from today.
Choose the pathway
We compare the available options against your circumstances, recommend one, and help you appoint the practitioner and run the process.
Insolvency advice from someone formally qualified in it
Watching a business you built run out of room is disorienting on its own. Doing it while wondering whether you are personally on the hook is a different kind of pressure, and most directors carry it quietly for months before they ask anyone.
One of our lawyers holds the ARITA Advanced Certificate in Insolvency and is a member of the Australian Restructuring Insolvency and Turnaround Association, so this work is done by someone formally qualified in it rather than by a commercial lawyer who sees it occasionally. We have advised directors, creditors and practitioners through solvency assessments, voluntary administrations, contested liquidations and preference recoveries. We will tell you plainly what the position is, including when the answer is one you did not want.
Our great lawyer guarantee
Six principles we hold to, whatever you bring us and however long it takes.
Take the time
We listen carefully to understand what you want to achieve, then step you through the advice and the documents.
Share our knowledge
We pass on as much as we can, so you can make your own informed decisions.
Stick to our knitting
We only do what we are good at, so you never pay for our learning.
Work as one team
Someone is always available to answer your question or point you the right way.
Fair pricing
A fixed or capped quote for advice and documents, so you do not carry the price risk.
It is your show
We are in it for a front row seat to witness your success, not for our egos.
Find out where the company stands
Bring us the figures and the creditor list. We will tell you whether the company is insolvent, when your own exposure would have started, and which options are still open, before another month decides it for you.
More on this area of law
Read more about corporate insolvency, director duties and winding up, and how ADLV Law can help.