How should you handle an unmanageable debt? What can you do when insolvency is on the horizon?
Can you get your money back? What are your options and procedures?
You should be aware of late payments and your debtor’s situation before they get to an insolvent stage, so you can negotiate directly and have a better chance of recovering money owed to you. A business can be restructured and undergo a turnaround plan.
However, if they are already under administration, which will eventually happen when a business becomes insolvent, you may or may not get your money back depending on the circumstances and how many creditors there are. ASIC has some advice on what to do if you are dealing with an insolvent business.
What does each term means and how do they apply to you or your business from a legal perspective?
Insolvency is when a person or company is unable to pay their debts, due to reasons such as cash flow, economic downturn, fraud, etc. An insolvent business does not have to cease operations. It has several options to resolve the insolvency. Meanwhile, bankruptcy is when a person, not a company, can’t pay his or her debts, and a bankruptcy proceeding needs to be taken to recover the debts.