The following are the key types of insolvency options in Australia:

External Administration/External Administrator

This term applies to companies, the control of which, either total or in part, has been taken out of the hands of the directors and placed in the hands of an External Administrator. The External Administrator is usually a company but in the case of a controller can be a corporation.

Insolvency Practitioner

An Insolvency Practitioner is usually a person but can be a company (in the case of a controller) appointed generally to take over the control (either completely or partially) of a company from its directors - either for a short time or until the company ceases to exist.

Insolvent

Broadly speaking, this is when a company or individual is unable to pay its debts when they are due for payment.

Liquidator

Liquidator is a term that is used in Australia to refer to a person who acts in relation to companies that are being wound up. In the case of a Members Voluntary Liquidation no qualification is required to become the Liquidator, in the case of a Court Winding Up the person must be an official Liquidator (with the Court). In the case of a Creditors Voluntary Liquidation or administration the person must be a Liquidator registered with ASIC.

Restructuring Without Liquidation

There are two ways that a company can re-structure its affairs without liquidation. This is usually to give the company a chance of continuing in existence - frequently to enable it to continue to carry on business but sometimes for other reasons, for example, ones driven by taxation considerations:

a. A Scheme of Arrangement - is the oldest way of restructuring a company. It involves the Court being approached for permission to call a meeting of creditors to consider a proposal outlined to the Court, then put to the creditors to consider the proposal. Finally, the matter goes back to court for its final approval after it has been informed of what happened at the creditors' meeting and to hear any objections to the scheme being approved that any creditor/member may wish to make.

The process is very complicated and expensive. Because of the introduction of the alternative procedure of Deeds of Company Arrangement (under the Voluntary Administration provisions), which is quicker and cheaper and does not require any court involvement, schemes of arrangement are used very rarely these days for insolvent companies. They are used more for solvent company corporate restructures.

b. Deed of Company Arrangements - were introduced into the Corporations Law in 1993 as a cheaper, quicker way of letting a company come to an arrangement with its creditors without going into liquidation and without having to meet the many and expensive requirements and procedures of a Scheme of Arrangement. A Deed of Company Arrangement must be preceded by a Voluntary Administration.

Secured Creditors

Secured creditors are usually banks or other financial or lending institutions although they can be smaller companies or individuals that give financial assistance to a company and have taken a security (like a mortgage) over the assets of the company. The security usually gives very extensive powers that let the secured creditor take the control of the whole of the company, or some of its more important assets, with a view to selling them so that the debt owed to the secured creditor can be forcibly repaid. For this database these have been put into two categories:

a. A Receiver - is a person from a firm of accountants who is a liquidator registered with ASIC.

b. A Controller - can be a person or a company, and does not need to be a registered liquidator although the majority are. A controller is put in control of a certain part of the property of a company for the purpose of selling it and paying the proceeds to the secured creditor - up to the amount owed. The term controller is used in this database to include an agent for the mortgagee in possession.

Voluntary Administration (VA)

This is the most common type of appointment for a company that is in financial difficulties. It is usually a half-way house to a Creditors' Voluntary Liquidation or a Deed of Company Arrangement.

In a very few cases the Voluntary Administration simply ends and the company is returned to the control of its directors. The Voluntary Administration must end fairly quickly by the company going into a Creditors Voluntary Liquidation, a Deed of Company Arrangement or being returned to the control of its directors.
The duration of an administration is usually about a month - but can be extended by the creditors or the Court.

Winding Up (WU)

The purpose of a Winding Up is to sell or otherwise realise all of the assets of a company, and to finalise all of its affairs with a view to then bringing the company's existence to an end - a corporate death. There are four main ways that this happens:

a. Creditors Voluntary Liquidation (CVL) - is a common way for companies that are insolvent to have their affairs dealt with by an insolvency practitioner. The essential condition for a Creditors Voluntary Liquidation is that the company is insolvent. A Creditors Voluntary Liquidation comes about either as the end result of a Voluntary Administration or as a direct result of the members of the company determining that the company should go into liquidation in circumstances where it will not be able to pay its creditors within 12 months of going into liquidation.

Although the members of the company choose the liquidator (insolvency practitioner), the creditors can change the liquidator (insolvency practitioner) at a meeting of creditors that follows, usually within an hour or so, the meeting of members at which the company is put into liquidation.

b. Court Winding Up (CWU) - occurs as the result of a court order. Most often the order is made because the company is insolvent. Orders are also made for many other reasons such as a dispute between the directors of the company that cannot be resolved making the management of the company unworkable.

c. Provisional Liquidation (PL) - this is a temporary situation for a company. The court appoints a PL usually where it is convinced that there is an urgent need to have somebody protecting the assets of the company. It can either proceed into liquidation from provisional liquidation or it can be returned to the control of its directors once the court has heard all of the evidence and determined not to make an order winding the company up. The usual outcome is a Court Winding Up.

d. Members Voluntary Liquidation - this does not (or should not) involve a company that is insolvent. Usually such a company is wound up where its use is no longer required. For example a family business that was conducted by the parents through a company and they have now retired and closed or sold the business off. Another common situation is where a large corporation no longer needs one of the companies in its group.