Financial Difficulty Guide 

Our SR Group Financial Difficulty Guide answers questions you may have about financial distress. We are here to assist and can be contacted on  +64 9 363 2989.  

INSOLVENCY FREQUENTLY ASKED QUESTIONS

​You may have a few questions about insolvency and our FAQs maybe of assistance.
What are the warning signs my company maybe in financial difficulty?
  • ongoing losses
  • poor cash flow
  • lack of cash-flow forecasts and other budgets
  • increasing debt (liabilities greater than assets)
  • unrecoverable loans to associated parties
  • creditors unpaid outside usual terms
  • solicitors’ letters, demands, summonses, judgements or warrants issued against your company
  • suppliers placing your company on cash-on-delivery (COD) terms
  • overdraft limit reached or defaults on loan or interest payments
  • problems obtaining finance
  • inability to raise funds from shareholders
  • overdue taxes and superannuation liabilities
  • board disputes and director resignations, or loss of management personnel

​If my company is in financial difficulty what should I do?
The most important first step is to get proper accounting and legal advice as early as possible, as this increases the likelihood of the company surviving. One of the most common reasons for the inability to save a company in financial distress is professional advice was sought far too late. SR Group can review your company and outline available options. 
​
My company is insolvent. How should I approach this?
Do not allow it to incur further debt. Unless it is possible to promptly restructure, refinance or obtain equity funding to recapitalise the company, your options are to appoint a voluntary administrator or a liquidator. The three most common insolvency procedures are voluntary administration, liquidation and receivership.

Do I have duties as a director?
Yes this includes:
Duty to not trade while insolvent. If you incur a new debt, you must consider whether you have reasonable grounds to suspect that the company is insolvent or will become insolvent as a result of incurring the debt. 
Duty to keep books and records. Your company must keep adequate financial records to explain transactions, the company’s financial position and performance. 
Duty expands to include creditors and employees with outstanding entitlements. You are responsible for making sure the company meets its PAYG withholding and SGC obligations. 
If your company fails to meet a PAYG withholding or SGC liability in full by the due date you will become personally liable for director penalties equal to the unpaid amounts.
​General duties imposed by the Corporations Act on directors and officers of companies include:
  • exercising your powers and duties with the care and diligence that a reasonable person would have which includes taking steps to ensure you are properly informed about the financial position of the company and ensuring the company doesn’t trade if it is insolvent;
  • exercise your powers and duties in good faith in the best interests of the company; 
  • not to improperly use information obtained through your position to gain an advantage for yourself or someone else, or to cause detriment to the company.
What are the consequences as a Director if my company is insolvent and trading?
The penalties can include the following:
Civil penalties. By hindering the Corporations Act, this can result in civil penalties against directors of up to $200,000.
Compensation proceedings. This is for amounts lost by creditors and can be initiated by ASIC, a liquidator or a creditor against a director personally. This can be made in addition to civil penalties.
Compensation payments are potentially unlimited and can lead to the personal bankruptcy of directors.
Criminal charges. If dishonesty is found to be a factor in insolvent trading, a director may be subject to criminal charges (can lead to a fine of up to $220,000 and/or imprisonment for up to 5 years).

​How does external administration affect me as a director?
When a company goes into external administration there are other consequences for directors to be prepared for. 
These vary depending on the type of external administration and can incorporate the following:
Directors’ powers. The Director loses control of the company. 
If a company goes from voluntary administration into a deed of company arrangement, the powers of the directors depend on the deed’s terms. When the deed is completed, the directors regain full control unless the deed provides for the company to go into liquidation on completion.
In a receivership, the powers of the directors depend on the powers of the receiver, as detailed in the charge document and the extent of the assets over which the receiver is appointed. 
If the receiver is appointed over most of the assets of a company, they effectively have control, although the directors still have certain responsibilities and duties, and may retain residual control.
Directors’ obligations. Directors have certain obligations to assist the external administrator. For more information see asic.gov.au.
Creditors’ meetings. These meetings are held in voluntary administrations and liquidations. Both a voluntary administrator and liquidator can also require a director to attend a creditors’ meeting to provide information about the company and its business, property, affairs and financial circumstances.
Disqualification. If a director has been involved with two or more companies that have gone into liquidation within the last 7 years and paid their creditors less than 50 cents in the dollar, ASIC may disqualify them from managing companies for up to 5 years. 

Do I need to assist the external administrator if I am a director?
Directors have an obligation to assist the external administrator by:
  • advising them, the location of company property and delivering any such property in their possession to the administrator
  • providing the company’s books and records or giving access to the books and records
  • advising the whereabouts of other company records
  • providing a written report about the company’s business, property and financial circumstances (commonly referred to as a RATA) within either 5 business days (voluntary administration), 7 days (creditors’ voluntary liquidation) or 14 days (receivership and court liquidation) of the appointment of the administrator, and meeting with, or reporting to, the external administrator to help them with their enquiries, as reasonably required.

BANKRUPTCY FREQUENTLY ASKED QUESTIONS​

​You may have a few questions about bankruptcy and our FAQs maybe of assistance.
​When I am bankrupt what are my obligations?
  • you must provide details of your debts, income and assets to your trustee;
  • your trustee notifies your creditors that you’re bankrupt - this prevents creditors from contacting you about your debt;
  • your trustee can sell certain assets to help pay your debts;
  • you may need to make compulsory payments.

What happens to my debts when I’m bankrupt?
Most debts are covered and this means that you no longer have to repay them. In some cases, your trustee may sell your assets or use compulsory payments to help pay your debts.

Which debts are covered in bankruptcy?
Unsecured debts - refers to credit and store cards, overdrawn bank accounts and unpaid rent, medical, legal plus accounting fees. In some cases your bankruptcy covers Centrelink debts, Australian Taxation Office debts, victims of crime debts and toll fines.
Secured debts - is tied to specific property. e.g. mortgage, car loan and hire purchase or rent to buy (eg. furniture or electronics). The creditor has the right to take possession of your property if you don’t make the payments. If this occurs you must assist with this recovery action.
Joint debts - is a debt you share with another person. If one person enters bankruptcy, the other person on the loan documents becomes 100% liable for the debt. If you have a guarantor for a loan (e.g. your parent), normally the guarantor becomes 100% liable for the debt.
Company debts - If you are a sole trader you can list your debts in the bankruptcy and you are a personal guarantor for company debts, you can include these in your bankruptcy.
Overseas debts - are debts you incur overseas are covered in your Australian bankruptcy. This means your creditors can’t pursue for that debt in Australia but can pursue you for the debt if you travel back to that country.
Direct debits - Cancel any direct debits you have set up with your bank. 

Which debts are not covered in bankruptcy?
Bankruptcy doesn’t cover all obligations, including:
  • court imposed penalties and fines;
  • child support & maintenance;
  • HECS & HELP debts; (government student loans)
  • debts you incur after your bankruptcy begins;
  • unliquidated debts (e.g. a debt where you and your creditor are yet to determine the amount).​

What happens to my assets when in bankruptcy?
During bankruptcy, your trustee may be able to claim, and sell, some of your possessions (assets). Your trustee can use proceeds from the sale of your assets to repay money you owe to creditors.
You must declare any assets you have when you apply for, and any you receive during bankruptcy. There are high penalties for not disclosing information to your trustee.
​Assets can include, but are not limited to the below:
Your vehicle. You can keep a vehicle/s you use mainly for transport up to a a set amount. 
Your house and property you own.  Your trustee can claim any house/s or property you own as an asset.
Money you receive during bankruptcy. This is money that doesn’t form part of your ordinary income. It can include superannuation, inheritance money, gifts of money and compensation payments.
Tools of trade. You can keep these tools as long as the value is below a set amount. If they are above the set amount your trustee is able to sell them to help pay your debts.
Your household belongings. You’re able to keep most ordinary household items of reasonable value. 
Will bankruptcy affect my partner’s assets?
It can affect your partner’s assets if they:
Own an asset with you. A joint asset is an asset owned by more than one person. Your trustee will have an interest in your share of the asset e.g. if you have a bank account in joint names, the trustee can claim your half of the balance.
Are entering into bankruptcy. The trustee would have an interest in the full amount of any joint assets.
Are in possession of an asset owned by you. This includes money, real estate, motor vehicles and other property.
Own assets that you contributed towards or helped purchase. This includes assets not registered in your name - e.g. a house or investment property.

During bankruptcy how much can I earn?
There is no limit to the amount of income that you can earn while you’re bankrupt. There is also no limit to the amount you can save during your bankruptcy. But if your after-tax income exceeds a set amount, you may have to make compulsory payments. Visit afsa.gov.au. for more comprehensive information.

What are compulsory payments (contributions)?
If your trustee determines you are earning over the income set amount, they’ll ask you to pay income contributions. Your trustee can use these contributions to help repay your outstanding debts. Your trustee will notify you how and when you need to make payments. Compulsory income payments are:
  • 50% of the amount you earn above the income threshold;
  • Paid by you to your trustee, and may go towards your creditors;
  • Calculated by your trustee to determine the amount you need to pay.

Is my income and employment affected by bankruptcy?
Becoming bankrupt doesn’t normally prevent you from working, though it will have an impact on your income and employment. One of your obligations when bankrupt is to keep your trustee informed of any changes in your income or employment 
as per below:
  • change jobs;
  • receive higher or lower income (including government assistance);
  • stop working.

Who will know I’m bankrupt?
Your name will appear permanently on a public register called the National Personal Insolvency Index (NPII) and shows details of insolvency proceedings in Australia, including bankruptcy.
​Additional information to appear on the register would be:
  • Name, date of birth, residential address and occupation that you disclose on your application;
  • Any previous names and aliases, if known.
  • The type of proceeding, the start date and the AFSA administration number;
  • The name and contact details of the trustee or administrator of the proceeding;
  • The current status of the proceeding e.g. whether you’re discharged from bankruptcy.

How is my credit file affected?
Credit reporting agencies keep a record of your bankruptcy for five years from the date you became bankrupt or two years from when your bankruptcy ends, whichever is later.