Receivership, administration, debt agreement, liquidation and bankruptcy. These are probably terms you’ve all heard before but perhaps never fully understood the difference? In a recent article we covered liquidation, bankruptcy and insolvency. In this article we will be covering many further common insolvency terms.
Receivership is normally instigated by a creditor that holds security over a company in circumstances where that company has failed to pay the debt owed to the secured creditor. A creditor can take security over practically any property including real property, debtors and plant and equipment.
A Receiver’s role is to secure and realise the assets a creditor holds security over – be that collecting debtors, selling real estate or collecting and selling plant and equipment. This is all done for the sole benefit of the secured creditor.
Receivers will usually be appointed in one of two ways – the security documentation between the creditor and the company expressly provides the right to appoint receivers or by application to Court under section 92 of the Property Law Act Qld (all other states have similar sections in their respective property law acts).
Voluntary administration is an alternative to liquidation for dealing with an insolvent company’s financial difficulties. It’s a process that provides an opportunity for a company’s business, property and affairs to be administered in a way that:
- Maximises the chances of a company and/or its business continuing, or if this is not possible;
- Results in a better return for the company’s creditors than would result from the immediate winding up of the company.
Usually there will be a month or two period where the company continues to trade under the control of the administrators. A proposal (Deed of Company Arrangement) will then be put forward to creditors to vote on as an alternative to the company going into liquidation.
For more information on voluntary administration see here.
Personal Insolvency Agreement
A personal insolvency agreement (PIA) is an alternative to bankruptcy to deal with your unmanageable debts.
You may propose a PIA to your creditors under Part X of the Bankruptcy Act if you:
- Are insolvent (unable to pay your debts as and when they fall due)
- Have not proposed a PIA in the last six months.
Just like a voluntary administration you should be putting forward a proposal to creditors that will give them a better return than if you went bankrupt.
Unlike proposing a debt agreement there are no debt, asset or income restrictions for proposing a PIA.
For more information see here
As the name states, this option involves a formal agreement with your creditors to pay a portion of the debts you owe and your creditors vote on whether to accept it or not. A majority need to vote in favour for it to be accepted. If accepted you will pay instalments over time which will be distributed to creditors by your deed administrator. Debt agreements can last for up to 5 years. While this option avoids bankruptcy, it is still a formal insolvency appointment and will be recorded on the National Personal Insolvency Index and your credit report.
For more information see here
If you have any queries about insolvency please get in touch on 1300 906 966 or chat to us via the live chat window on our site.