In simple terms, the Corporations Act states that a company will be insolvent if they are unable to pay their debts as and when they become due and payable. When the matter reaches court however, there are many elements to be considered before a company is determined to be solvent or insolvent.
The easiest way to prove that a company is insolvent is to issue a Creditor’s Statutory Demand on a company. This Demand must comply with Section 459E of the Act and allows a company a period of twenty-one days to challenge the demand or to pay the debt. If the debt is not paid within twenty-one days, a creditor is able to commence court proceedings for the company to be wound-up as insolvent.
Our insolvency experts will always explore every option provided by the Corporations Act before insolvency is declared. In some cases, a company’s financial problems can be resolved by a Deed of Company arrangement or the appointment of receivers, controllers or administrators.