How can a solicitor help during insolvency?

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How can a solicitor help during insolvency?

Both solicitors and insolvency practitioners play a crucial role during insolvency. Our blog aims to help you to distinguish these roles and understand how each can advise you during a financial crisis.

What is insolvency?

Insolvency occurs when an individual or company is no longer able to pay their debts when they are due. If an individual becomes insolvent, a bankruptcy trustee will be appointed to administer their estate. Similarly, an insolvency practitioner will be appointed to manage the administration, liquidation or receivership of a company.

When is a company insolvent?

An insolvent company is one that cannot pay its debts when they fall due for payment. There are various tests used to determine whether a company is insolvent, these include the cash-flow test and the balance sheet test.

  • The cash-flow test is satisfied when a company is currently, or in the future, unable to pay its debts as and when they fall due for payment; or
  • The balance sheet test is fulfilled when a company’s assets are less than the amount of its liabilities, taking into account future liabilities. If either of these tests is satisfied, the company may be considered insolvent.

When a company is considered insolvent, an insolvency practitioner will be appointed to manage the administration, liquidation or receivership of a company.

What is an insolvency practitioner?

An insolvency practitioner is licensed to act in relation to an insolvent company. Most insolvency practitioners are accountants or insolvency specialists working in firms of accountants. The role of an insolvency practitioner includes:

  • Selling assets;
  • Collecting payments that are due;
  • Negotiating creditor’s claims; and
  • Distributing any money collected after paying costs.

The role of an Insolvency Practitioner is to look after the interests of creditors and to determine who is or who is not a creditor.

What is a solicitor’s role in insolvency?

Solicitors are extremely useful in assisting insolvency practitioners to recover the maximum amount of money for creditors. Our experienced Newcastle solicitors can help insolvency practitioners to:

  • Recover debts;
  • Advise on income tax considerations of insolvency;
  • Recover payments made in preference to other creditors;
  • Seek further orders of the court to assist in liquidation, including appointment as receiver and manager of the property of the bankrupt or insolvent entity;
  • Advise on uncommercial transactions;
  • Prepare contracts for the sale of businesses or assets;
  • Pursuing an insolvent trading claim against the insolvent entity;
  • Providing advice on the application of the Personal Property Securities Act 2009;
  • Preparing contracts and deeds connected with bankruptcy, administration, liquidation and receivership; and
  • Advising on the rights connected with possession, occupation and liens.

At Butlers Business & Law, we pride ourselves on our practical, commercial focus. Our team of solicitors can provide practitioners with speculative obligation free advice regarding the prospects of recovery or pursuit of a matter in insolvency.

Want to know what Butlers Business & Law can do to assist you in your legal matter? Talk to our experienced solicitors in Newcastle, the Hunter or Sydney! Call us on (02) 4929 7002, email us or complete an enquiry form to book your free 20-minute consultation.

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2017-05-26T00:00:00+00:00May 26th, 2017|Insolvency, Solicitors Newcastle|
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