Insolvency & Liquidation: Protecting Your Business and Legal Rights
We provide clear, strategic advice on all aspects of corporate and personal insolvency, liquidation, and debt recovery.
Insolvency and liquidation are complex legal processes that can have serious consequences for directors, shareholders, creditors, and employees. If your company is facing financial distress—or you’re owed money by an insolvent company—getting timely legal advice is critical.
Services
How we can support you
Insolvency risk assessment and legal advice
Representation in liquidation and administration matters
Defence against insolvent trading claims
Director protection and compliance advice
Advising secured and unsecured creditors
Bankruptcy and personal insolvency guidance
What Is Insolvency?
In Australia, a company is considered insolvent when it is unable to pay its debts as and when they fall due. Corporate insolvency can lead to:
- Voluntary administration
- Liquidation (winding up)
- Receivership
Personal insolvency, such as bankruptcy, applies to individuals and is governed by the Bankruptcy Act 1966 (Cth).
Signs Your Business May Be Insolvent
Common warning signs of insolvency include:
- Inability to pay creditors on time
- Continual losses or negative cash flow
- Defaulting on tax obligations (ATO debts)
- Overdue superannuation or wages
- Pressure from suppliers or threats of legal action
- Director loans or personal guarantees supporting business operations
If any of these apply, it’s essential to seek professional legal advice to protect your business and comply with directors’ duties under the Corporations Act 2001 (Cth).
What Is Liquidation?
Liquidation is the formal process of winding up a company’s affairs. The company’s assets are sold off (liquidated) to repay creditors, and the company is deregistered.
There are three main types of liquidation:
1. Creditors’ Voluntary Liquidation (CVL)
Initiated by the company’s directors and shareholders when the business is insolvent and cannot be rescued.
2. Court-Ordered Liquidation
Begins when a creditor applies to the court to wind up a company that has failed to pay its debts (often following a statutory demand).
3. Members’ Voluntary Liquidation (MVL)
Used when a solvent company chooses to close down in an orderly manner—often for tax or restructuring reasons.
The Role of a Liquidator
A registered liquidator is appointed to:
- Investigate the company’s affairs
- Identify and realise assets
- Distribute proceeds to creditors in priority order
- Report on any potential misconduct by directors
We work with liquidators and advise stakeholders to ensure the legal process is followed properly and your interests are protected.
Directors’ Duties in Insolvency
When a company becomes insolvent, directors have strict legal duties and must act in the best interests of creditors. Key obligations include:
- Avoiding insolvent trading (continuing to incur debt when the company cannot pay existing debts)
- Preserving company records
- Cooperating with the appointed liquidator
- Avoiding preferential payments to specific creditors
Breach of these duties can result in personal liability, disqualification, or civil and criminal penalties. Our lawyers provide practical advice to directors on navigating these risks.
Legal Support for Creditors
If you’re owed money by a struggling or insolvent company, we can assist with:
- Issuing statutory demands or letters of demand
- Winding-up applications in court
- Proofs of debt submissions in liquidation
- Challenging unfair preferences or voidable transactions
- Recovery through personal guarantees or securities
We act quickly and strategically to maximise your chances of recovering outstanding debts.
FAQS
Can I trade while my company is insolvent?
No. Trading while insolvent is illegal under Australian law and can lead to personal liability for directors.
What is the difference between insolvency and liquidation?
Insolvency refers to the financial condition (inability to pay debts), while liquidation is the legal process of winding up an insolvent company.
What happens to employees during liquidation?
Employees are priority creditors for unpaid wages, superannuation, and entitlements. In some cases, the Fair Entitlements Guarantee (FEG) may apply.
Speak to an Insolvency Lawyer Today
If your business is facing insolvency—or you’re a creditor seeking recovery—time is of the essence. The sooner you act, the more options you may have available.
At Marjason & Marjason Solicitors, we guide you through insolvency and liquidation with clarity, confidence, and compliance. Our team advises directors, creditors, and liquidators across Australia.