QUARANTINE YOUR ASSETS!

”Insolvency is the state of being unable to pay the money owed, by a person or company, on time; those in a state of insolvency are said to be insolvent."

There are two forms of Insolvency:

Cash-Flow insolvency is when a person or company has enough assets to pay what is owed, but does not have the appropriate form of payment. Cash-flow insolvency can usually be resolved by negotiation; for example, the creditor may wait until the asset(s) is/are sold and the debtor agrees to pay a penalty.

Balance-Sheet Insolvency is when a person or company does not have enough assets to pay all of their debts.The person or company might enter bankruptcy, but not necessarily. Once a loss is accepted by all parties, negotiation is often able to resolve the situation without bankruptcy.

The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the liquidation and elimination of insolvent entities but on the remodelling of the financial and organisational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of their business; this is known as business turnaround or business recovery. Implementing a business turnaround may take many forms, including retain and restructure, sale as a going concern, or wind-down and exit the business. 

Debt restructuring is a process that allows a private (or public) company facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

Harsh penalties apply for company directors who potentially can be prosecuted under the Corporations Law for insolvent trading and/or fraud and, in addition, from a compliance perspective, one cannot use company money for non-business purposes without triggering a deemed dividend whereby tax is applied at the top marginal rate; two very good reasons to rethink how one structures one’s business!

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Debt Agreementsare available to low income earners who cannot pay everything they owe, but want to avoid going bankrupt. Debt agreements have serious long term consequences that may affect your career or your ability to obtain credit in the future.

Part IX Debt Agreements are offered as an ‘alternative’ to Bankruptcy; whereas in fact they are a type of bankruptcy and will be listed on your credit report and the National Personal Insolvency Index (NPII) for five years from the date the agreement is made, or the obligations discharged, whichever is the later. Under a Part IX debt agreement, your creditors agree to accept an amount of money that you can afford to pay, over a set period of time, to settle your debts.  Once you have paid this money your creditors cannot recover the rest of the money you owe.

Debt Agreements Do Not Cover the following Liabilities:

Secured Debts(a debt that is tied to an asset);

Joint Debts(If the debtor had a debt in joint names and their partner is unable to repay their share of the debt, the creditor can ask the debtor to repay the outstanding amount);

Debts Incurred by fraud;

Child Support;

Fines, Penalties or other Court-Ordered Payments;

Student Debt; (HECS or HELP, Student Financial Supplement Scheme debts);

Overseas Debt; (an overseas creditor is allowed to be part of the debt agreement process. Whether the debtor will be liable for any outstanding balance when the debt agreement has finished will depend on the laws in the country where the debtor signed the contract.)

# Prior to filing for bankruptcy, or entering into a debt agreement, one needs to have quarantined any/all assets are restructured ones financial affairs so that one becomes a pauper as far as the bankruptcy Trustees, Administrators and/or Receivers are concerned.