Insolvency and Bankruptcy

An individual or business is ‘insolvent’ when they can no longer repay their debts on time.

Corporate insolvency relates to a business being unable to pay what it owes. Similarly, personal bankruptcy offers a solution for an insolvent individual. Both have serious ramifications and should not be entered into lightly.


By way of the Corporations Act (Commonwealth), a creditor may commence debt recovery proceedings against a company to retrieve what they are owed. This would usually involve engaging a lawyer, who sends a Statutory Demand. The result may be that the debtor pays up, to avoid insolvency. Another option is that the company enters into an arrangement with its creditors, known as ‘voluntary administration’. Or creditors may apply to the Court for an order to wind-up the company. The company then goes into liquidation and can no longer trade.

Insolvent trading is when a company continues to trade despite being unable to meet its debts. The risk is that the Directors may become personally liable for the company’s debts.


The Bankruptcy Act (Commonwealth) sets out the law in relation to bankruptcy. Bankruptcy is a way for an individual to finalise their debts. When a person is declared bankrupt, a Trustee is appointed to hold their estate for at least three years. The Trustee’s role is to sell (liquidate) the Bankrupt’s assets and distribute the proceeds amongst the creditors who are owed money. The bankrupt person will usually have to pay the Trustee regular contributions from their income.

Having a person declared bankrupt is not necessarily a guarantee that the creditor will be paid.

Don’t leave it too late

Discussing instalment payments with creditors is always advisable if you cannot pay your debts on time. Once served with a Creditors Statutory Demand or a Bankruptcy Notice, you have only 21 days to pay the debt.

Our lawyers can help you to recover money you are owed, dispute a debt, or advise you on the best course of action when you can no longer meet your liabilities. We are experienced in all aspects of debt recovery, and can act for creditors and debtors, as well as advising Trustees in relation to their duties.