A company is insolvent when it can’t pay all its debts on time.

There are serious penalties for letting your company trade while insolvent. If you suspect your company can’t pay its debts when they’re due, consult one of the following immediately:

The information on this page is for companies. If you’re a sole trader or part of a partnership and can’t pay your debts, see our information about bankruptcy instead.

Options for an insolvent company

The most common corporate insolvency procedures for an insolvent company are:

  • liquidation
  • voluntary administration
  • receivership
  • small business restructuring.

Liquidation

A registered liquidator takes control of your insolvent company and winds it up. This includes selling company assets and using the proceeds to repay debts.

Voluntary administration

You appoint a registered liquidator to take control of your company. This liquidator is also called a voluntary administrator.

The voluntary administrator will review your company’s situation. They’ll provide a report to your creditors (the people or businesses you owe money to) assessing 3 options:

  • the company is returned to the directors to run
  • the company and its creditors enter a deed of company arrangement – a binding agreement that aims to get a better return for creditors
  • the company goes into liquidation.

The report will recommend which of these options is best for your creditors. The creditors then decide which option they want to take.

Receivership

One or more of your company’s secured creditors (creditors with a security interest in company assets) appoint a registered liquidator as a ‘receiver’. The court can also appoint a receiver.

The receiver will collect and sell enough of your secured assets to repay these creditors.

Small business restructuring

Some insolvent companies can choose to restructure. This means the directors stay in control of the company and work with a registered liquidator on a plan to restructure the company. Affected creditors then decide whether to accept the plan.

Not all companies are eligible for this option. For example, your company’s total debt can’t exceed $1 million.

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