On 24 March 2021, the Australian Federal Government made alterations to the Company Administration (COG) and insolvency laws in Australia about its response to the recent Coronavirus (Cor) outbreak. These changes are temporary and only applicable for 6 months from that date. The government called on all businesses to stop using default or voluntary liquidation and opted for an orderly liquidation of company assets. It also called on business to ensure that directors complied with guidelines and reporting requirements for compulsory liquidation. For businesses already carrying out any of these actions, they are now required to provide information on all compulsory liquidation activity.
There was also a review of the way that debtors were being treated by the courts and it is hoped that this review will lead to better outcomes for both debtors and creditors. The COG and insolvency laws for businesses were introduced to provide more effective and efficient ways for businesses to meet their obligations. The laws also came into effect to help with the reduction of Australia’s national debt and restore consumer confidence in the financial system. Australia’s debt burden is now considered the third-worst in the world after the United States and Japan, with the US in the first place.
Under the new COG laws, a company cannot be directly advised of the bankruptcy option available to it if it is still trading, unless it can make a fresh start with the debtor by meeting its obligations. Furthermore, a company cannot be advised that all or part of the debts will have to be repaid through legal means and all penalties and interest charges will still have to be incurred. If the company can fulfil its obligations by trading and repay the debts in a new business set up, then a certificate of Voluntary Liquidation can be granted. This allows a company to return to trade while still fulfilling its obligations, giving a brighter future to struggling businesses.
To determine whether a company is solvent or not, its credit rating and ability to pay are examined under the Insolvency Practitioners Act 1980. Under this law, a company has 21 days within which a creditor can apply to the court for an assessment to be made on the ability of a debtor to pay off debts. If the court believes that the debtor is unable to repay the debts, an order to compulsory liquidation will be made by the court. In Australia, this is known as the Company voluntary Agreement. In this agreement, a creditor and a debtor agree that the debtor will pay a specified amount of money over a specified period to ensure that the creditors do not lose any rights to any interest or assets in the case of bankruptcy.
A creditor cannot ask for the debtor’s last known address before making a bankruptcy application. The Insolvency Practitioners Act 1966 also protects a debtor’s assets and properties from the bankruptcy estate. This applies to all creditors including commercial creditors and industrial creditors. A debtor is required to disclose all relevant information about their financial situation to an insolvent company or agent before applying to the court. This includes all details about their assets, liabilities and current financial position.
Another significant piece of legislation is the Family Law Act 1975. This provides an important framework that governs how family law matters are handled in the Australian environment. The main purpose of the Act is to provide an opportunity for both parties to reach an agreement on how to deal with the debts. The main aspects of the Act are that creditors must not be forced to repay a debt if it is not in the best interests of the debtor and that a debt must be accepted even if the debtors have no chance of repaying it. Creditors are allowed to negotiate with debtors, but this must only occur once the other party has provided them with all relevant information.
The most important aspect of bankruptcy laws in Australia is that they provide the necessary impetus for both debtors and creditors to work together to find viable solutions. It is very common for different creditors to approach a debtor with different proposals, with the ultimate aim being repayment of debts. These negotiations usually end up in temporary agreements, with one creditor offering assistance over a longer time. This solution can be very helpful in situations where the debtor is unable to continue paying their creditors.
The Family Court Act makes declaring bankruptcy in Australia easier if you make sure that your financial situation is suitable under the Family Code. It may also be advisable to seek legal counsel so that your case is properly represented. Once your bankruptcy application has been accepted, you will be required to pay off all debts and begin rebuilding your life. You can do this by having a regular income and by spending sensibly so that you avoid falling into the trap of bankruptcy again.