Dealing with insolvency
Insolvent means that a corporation cannot pay its debts, as and when they fall due. Solvent means that a corporation can pay its debts, as and when they fall due.
What to do if you suspect insolvency
If you have concerns that your corporation is trading while insolvent, nearing insolvency, or a creditor is chasing payment from your corporation:
- do not allow your corporation to incur further debt
- get professional accounting and/or legal advice.
There are serious consequences if you don’t do these things.
Getting advice early will also give your corporation the best chance of recovery.
Who to ask for help
Insolvency advice is best sought through a licensed professional who can provide advice specific to the circumstances of your corporation’s situation.
ORIC cannot provide a corporation legal or financial advice as to whether or not it is insolvent, or your duties as a director in situations of insolvency.
Legal obligations and consequences for directors
Each director has a legal obligation to prevent insolvent trading and to not allow the corporation to keep trading while insolvent. Individual directors can be fined or go to prison for allowing a corporation to trade while insolvent.
Read more on legal duties of directors under the CATSI Act.
Directors are responsible for the corporation paying its tax and super on time. If the corporation doesn’t pay them by the due date, current and former directors may have to.
Check the ATO website for more information on the director penalty notice regime.