Insolvency and bankruptcy

Insolvency occurs when your business cannot pay its debts, which can result in your business closing down. Different insolvency procedures apply to individuals and companies.

Managing debt

It is important to recognise financial difficulty early so you can look at ways to avoid insolvency. You should always seek financial and legal advice when you are having trouble managing your debts.

Personal insolvency

Personal insolvency procedures apply to sole traders and individuals in a partnership.

If you are unable to pay your debts, the Bankruptcy Act 1966 (Cwlth) provides 3 formal options for dealing with unmanageable debt:

  • debt agreements
  • personal insolvency agreement
  • voluntary bankruptcy.

Declaring bankruptcy is a serious decision. Bankruptcy may last up to 3 years or more and will affect your ability to:

  • borrow money
  • travel overseas
  • perform certain jobs.

Learn more about bankruptcy.

Company insolvency

An insolvent company is one that is unable to pay its debts. In some situations, insolvent companies may go into liquidation. Liquidation is the orderly winding up of company business. It involves stopping all operations and sales, selling company assets to pay creditors and distributing any surplus funds among shareholders.

There are 3 types of liquidation:

  • court liquidation
  • creditors' voluntary liquidation
  • members' voluntary liquidation.

Learn more about company insolvency procedures.