Glossary of Insolvency Terms
This glossary of insolvency terms briefly explains some of the terms you may come across in personal or company insolvency proceedings. Please note that this glossary is for general guidance only. Many of the terms have a specific technical meaning in certain contexts that may not be covered here. For more information, please call one of our experts on 1800 861 247.
- A personal insolvency. Can be a debt agreement, personal insolvency agreement, Part IV bankruptcy or Part XI deceased estate.
- The effective and efficient management of a debtor’s or bankrupt’s financial affairs in accordance with the Bankruptcy Act 1966.
Acronym for Australian Financial Securities Authority. The Australian Financial Security Authority is an executive agency in the Attorney-General’s portfolio. It is responsible for the management and application of bankruptcy and personal property securities laws through the delivery of high-quality personal insolvency and trustee, regulation and enforcement, and personal property securities services.
Annual Meeting & Annual Report
Liquidators of Voluntary Windings Up (whether Members or Creditors Voluntary Wings Up) are required under section 508 of the Corporations Act to either (i) hold an annual meeting of members and creditors of the company; or (ii) lodge an annual report with ASIC detailing the position of the winding up.
Acronym for Australian Restructuring Insolvency & Turnaround Association. An organisation in Australia for insolvency professionals. Formerly known as the Insolvency Practitioners Association of Australia.
Any property of value owned by a person. Can include tangible and intangible assets.
Acronym for Australian Securities & Investments Commission. ASIC is Australia’s integrated corporate, markets, financial services and consumer credit regulator.
In relation to a person, means:
- an entity (other than a company) that is, or has been, associated with the person; or
- a company that is, or has been, associated with the person at a time when the company is, or was, as the case may be, a private company.
- against whose estate a sequestration order has been made; or
- who has become bankrupt by virtue of the presentation of a debtor’s petition and remains undischarged (an undischarged bankrupt). A discharged bankrupt is a bankrupt who has been discharged from bankruptcy under Section 149 of the Bankruptcy Act.
Bankruptcy Act 1966
The Commonwealth legislation that provides for bankruptcy, Part IX (debt agreements), Part X (personal insolvency agreements) and Part XI deceased estate administrations. It deals with individuals.
A notice issued by the Official Receiver to a debtor under section 41 of the Bankruptcy Act requiring the debtor to satisfy a Judgment debt with a specific time period.
A notice, usually on a register, to place the public on notice that no action of a certain kind may be taken without first informing the person who gave notice. The most common use is placing a notice on the title of Real Property to protect an interest in that property.
Certificate of appointment
A certificate issued by the Official Receiver confirming the appointment of a trustee (or trustees) to an insolvency administration.
Committee (convened under Schedule 2 of the Act)
A committee convened by ASIC under Schedule 2 to the Corporations Act 2001 (Corporations Act) to either consider an application by a person to be registered as a liquidator or to consider conduct issues to decide whether to impose disciplinary sanctions against a registered liquidator.
Assets that are secured by a security interest and include personal and real property.
A person appointed by a secured creditor to deal with assets subject to a security interest. This includes a receiver and a receiver and manager.
A liquidation that starts as a result of a court order, made after an application to the court, usually by a creditor of the company.
A file kept by a credit reporting agency that shows a person’s credit history. Lenders access the information in the person’s file to help them decide whether to lend money.
An entity which is owed money.
Creditors meeting (meeting of creditors)
A meeting of the creditors of a debtor or bankrupt that is convened by the controlling trustee or trustee so that certain issues can be put to creditors for their consideration and a vote.
An application (a petition) to the Courts to place a debtor into an insolvent estate (bankruptcy for a person or liquidation for a company) under an Order of the Court. The application is usually made by a creditor, or more than one creditor jointly, that has an unsatisfied Bankruptcy Notice or Statutory Demand. The application must be heard by the Courts.
Creditors’ voluntary liquidation
A liquidation for insolvent companies, initiated by the company.
A document acknowledging that a company undertakes to repay a sum of money lent to the company by the holder of the document.
An amount owed.
Debt Agreement Administrator
An eligible person nominated by a debtor to handle a debt agreement on his or her behalf. May or may not be registered.
A person who owes a debt.
Means a petition presented by a debtor against himself or herself and includes a petition presented against a partnership in pursuance of section 56 of the Bankruptcy Act and a petition presented by joint debtors against themselves in pursuance of section 57 of the Bankruptcy Act.
Declaration of indemnities
A declaration that must be provided to creditors by a voluntary administrator or a liquidator in a creditors’ voluntary liquidation informing creditors about any indemnities given to the voluntary administrator or liquidator to cover fees or other debts incurred by them in acting as voluntary administrator or liquidator of the company. The declaration provides information to enable creditors to make an informed decision about whether they wish to replace the voluntary administrator or liquidator over concerns about independence.
Declaration of relevant relationships
A declaration that must be provided by a voluntary administrator or a liquidator in a creditors’ voluntary liquidation informing creditors about certain relationships. The declaration provides information to enable creditors to make an informed decision about whether they wish to replace the voluntary administrator or liquidator over concerns about independence.
The external administrator appointed to oversee a deed of company arrangement.
Deed of company arrangement
A binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with, which may be agreed to as a result of the company entering voluntary administration. Aims to maximise the chances of the company, or as much as possible of its business, continuing, or to provide a better return for creditors than an immediate winding up of the company, or both.
In relation to a bankrupt means a person who:
- resides with the bankrupt; and
- does not receive any income from a person other than the bankrupt or a spouse or former spouse of the bankrupt and:
- is wholly dependant on the bankrupt for economic support or partially dependant on the bankrupt and partially on the spouse or former spouse.
A natural person appointed as a director of a company who is then responsible for directing and managing the affairs of a company. Also includes a shadow director.
Director Penalty Notice
A notice served by the Commissioner of Taxation on a director regarding a remittable amount.
Discharge from bankruptcy
The end of a person’s period of bankruptcy—although the activities of the bankrupt estate may continue. At present, the date of discharge is the day after bankruptcy ends, which is three years and one day from when a person files their statement of affairs with the Official Receiver unless an objection to discharge is filed by the trustee that extends the bankruptcy.
Disclaiming a Lease
The process where a liquidator of bankruptcy trustee formally terminates an ongoing lease (or other financial obligation), thereby activating the right of the financier to deal with the financed asset.
A share of the profit of a solvent company paid to shareholders. Also used to describe a sum paid to creditors out of the assets of an insolvent company.
Doctrine of Exoneration
A principle in equity law that deals with the rights of co-owners of a property where one co-owner has used that property as security for a loan that solely benefited that person. The Doctrine makes assumptions about the roles of principle and surety over the loan and the security.
In relation to a corporation, means:
- ASIC; or
- a liquidator or provisional liquidator of the corporation; or
- an administrator of the corporation; or
- an administrator of a deed of company arrangement executed by the corporation; or
- a person authorised in writing by ASIC to make:
- applications under the Division of Part 5.9 in which the expression occurs; or
- such an application in relation to the corporation.
Amounts owing the employees of the insolvent, usually made up of outstanding wages, commissions etc; outstanding leave entitlements and redundancy payments. These entitlements are generally priority claims in insolvent estates, but the level of that priority and the amount of the entitlement that is priority varies in certain circumstances.
A natural person, company, partnership or trust.
In relation to a bankrupt:
- the persons’ dealings, transactions property and affairs; and
- the financial affairs of an associated entity of the person as they are, or appear to be, relevant to the person or to any of their conduct, dealings, transactions, property and affairs.
In relation to a company:
- the promotion, formation, management, administration or winding up of the corporation; or
- any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or
- the business affairs of a connected entity of the corporation as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs.
A defined term for an external person formally appointed to control the affairs of a company and its property. Includes a provisional liquidator, liquidator, voluntary administrator and an administrator under a deed of company arrangement.
Acronym for Fair Entitlements Guarantee. An Australian Government payment scheme administered by the Department of Employment to assist employees who have lost their jobs as a result of their employer’s liquidation or bankruptcy and are owed employee entitlements. The FEG operates in relation to claims for assistance for certain unpaid employee entitlements for all employer liquidations and bankruptcies that occur on or after 5 December 2012.
Final Meeting of Creditors
Liquidators of Voluntary Windings Up (whether Members or Creditors Voluntary Wings Up) are required under section 509 of the Corporations Act to hold a final meeting of members and creditors of the company to advise of the finalisation of the winding up and present the final accounts of the winding up.
Includes a charge that conferred a floating security at the time of its creation but has since become a fixed or specific charge.
The application of accounting and business knowledge to the purposes of law. e.g. detecting fraud, analyzing or reconstructing books and records.
An automatic deduction arranged without a person’s consent (generally from their income or bank account) due to non-payment of a debt. A trustee in bankruptcy can garnishee income or monies held by third parties on behalf of a bankrupt, where the bankrupt has been assessed as liable to pay income contributions to his or her bankrupt estate and has failed to make payments.
Acronym for General Employee Entitlements and Redundancy Scheme. An Australian Government payment scheme to assist employees who have lost their jobs as a result of their employer’s liquidation or bankruptcy, and are owed certain employee entitlements. GEERS operates in relation to claims for assistance for certain unpaid employee entitlements for all employer liquidations and bankruptcies that occurred before 5 December 2012.
A thing or circumstance that causes ongoing or persistent suffering or difficulty. There are specific hardship provisions in section 139T of the Bankruptcy Act 1966 that are limited to exceptional circumstances that would impose an excessive financial burden on a debtor. The list of hardship reasons is exhaustive and includes ongoing medical expenses, necessary childcare costs to enable employment and rent costs.
An entity that is in liquidation or receivership, or which has a representative appointed; and a person that in bankrupt or who has entered into some arrangement under the Bankruptcy Act.
Income Contribution Assessment
The assessment of a bankrupt’s income by their Trustee to determine whether the bankrupt is liable under the Bankruptcy Act to pay a contribution to their estate.
An agreement between the external administrator and a third party to cover the fees and other debts incurred by the external administrator.
Amounts referenced in the Bankruptcy Act 1966 and related statutory instruments that are periodically adjusted in accordance with the consumer price index. Some are adjusted every quarter, others every six months. As an example, they identify the value of assets that can be retained by a bankrupt or the income a bankrupt can earn before they are required by law to contribute towards their bankruptcy.
Unable to pay all debts when they fall due for payment.
A claim that a Liquidator of a company may make against a Director of that company for compensation. The amount of compensation is calculated on the amounts of debts incurred by the company, that remains unpaid at the time liquidation and that were incurred when the director knew or should have known, that the company was insolvent.
An asset with no identifiable physical form (e.g. a contractual right, copyrights, patents and goodwill).
A debt shared by more than 1 person. In the case of Bankruptcy, if one of the debtors includes the debt in bankruptcy, the creditor may pursue the remaining debtors for payment.
A judgment, decree or order, whether final or interlocutory, obtained by way of a decision of a Court, made pursuant to an application to the Court to make that decision.
A legal obligation to pay a person.
The orderly winding up of a company’s affairs. It involves realising the company’s assets, cessation or sale of its operations, distributing the proceeds of realisation among its creditors and distributing any surplus among its shareholders. The three types of liquidation are: court, creditors’ voluntary and members’ voluntary.
A natural person appointed to administer the liquidation of a company.
Member (of a company)
Members’ voluntary liquidation
A liquidation for solvent companies, initiated by the company.
Acronym for National Personal Insolvency Index. A publicly available and permanent electronic record of all personal insolvency proceedings in Australia. The NPII provides information about individuals who have been subject to proceedings under the Bankruptcy Act 1966 from August 1928. It does not include any information on company liquidations or administrations.
In relation to property:
- if the property is unencumbered: the value of the property;
- if the property is encumbered and the unencumbered value of the property exceeds the amount or value of the encumbrances: the amount of the excess; or
- in any other case: a nil amount.
In Bankruptcy; in relation to an entity, in relation to a time:
- if the entity is a trust and the total value of the trust property as at that time exceeds the total of the amounts of the trustee’s liabilities as at that time (other than liabilities constituted by the rights of persons as beneficiaries under the trust): the amount of the excess;
- if the entity is not a trust and the total value of the entity’s assets as at that time exceeds the total of the amounts of the entity’s liabilities as at that time: the amount of the excess; or
- in any other case: a nil amount.
Assets that the company may not dispose of without the consent of the secured creditor.
Non-circulating security interest
A security interest held by a secured creditor in non-circulating assets of a company.
Objections to discharge
A process where a Trustee in Bankruptcy may apply for the extension of the term of a bankruptcy (effectively keeping someone bankrupt for an extended period). Objections to Discharge must be based on some ‘Ground’ and – depending on that Ground – the extension may be for 2 or 5 years. This process is possible under Division 2 of Part VII of the Bankruptcy Act.
Officer (of a company)
A director, secretary or external administrator (in most cases) of the company.
Part IX Debt Agreement
A legally binding agreement between a debtor and their creditors reducing the overall debt amount owed. It is Part IX of the Bankruptcy Act.
Part X Debt Agreement
Part X of the Bankruptcy Act, dealing with the administration of insolvent estates outside of bankruptcy leading to a proposal by a debtor to their creditors to enter into a Personal Insolvency Agreement.
Personal Insolvency Agreement
The name of the agreement that can be made between a debtor (being a real person) and their creditors under Part X of the Bankruptcy Act.
Poll (of creditors)
A voting procedure where both the number of creditors voting in a particular way and the value of their debts is considered in deciding if a resolution is approved or not.
The practice of treating the affairs of a group of companies as if it were a single external administration.
A payment or payments made to a creditor under certain circumstances whilst the payer is insolvent, where that payment is recoverable from the recipient by a Liquidator of a company or a Trustee of a Bankrupt Estate.
Provisions that the Corporations Act takes to be included in a deed of company arrangement, unless the deed specifically excludes them.
The order set down by the Corporations Act for the payment of unsecured creditors of an insolvent company by an external administrator.
An unsecured creditor entitled to be paid ahead of other creditors (e.g. employees).
Proof of debt
A prescribed form to be completed by creditors at the liquidator’s request, setting out details of their claim against the company, including how the debt arose and the amount claimed.
A debt that entitles the creditor to lodge a claim and participate in a dividend in a debt agreement, personal insolvency agreement, bankruptcy or deceased estate administration.
A liquidator appointed by the court to preserve a company’s assets until a winding-up application is decided.
A person appointed by another person to represent them at a meeting. A proxy is usually entitled to attend and vote on behalf of the person who appointed them. In an external administration, the appointer is usually a creditor or shareholder.
A liquidator, voluntary administrator, deed administrator, ASIC or a person authorised by ASIC to do so can apply to the court to question an externally administered company’s directors or any other person who may be able to give information about the affairs of the company.
Quorum Bankruptcy Act
In relation to the Bankruptcy Act, a quorum is constituted by:
- the presence in person of the trustee (or the trustee’s representative); and
- a creditor, or a proxy or attorney of a creditor, participating in person or by telephone.
Note: A meeting requires at least 2 persons. Therefore the person covered by paragraph (2)(a) cannot also be the proxy or attorney of the creditor covered by paragraph (2)(b).
Quorum Corporations Act
In relation to the Corporations Act, a quorum consists of:
- if the number of persons entitled to vote exceeds 2: at least 2 of those persons; or
- if only one person is, or 2 persons are, entitled to vote: that person or those persons; present in person or by proxy or attorney.
Convert assets into cash, often by selling them.
A natural person appointed by a secured creditor to realise enough of the assets subject to their security interest to repay the secured debt. Less commonly, a court may appoint a receiver to protect the company’s assets or to carry out specific tasks. A receiver is required to be a registered liquidator.
Receiver and manager
A receiver who has, under the terms of their appointment, the power to manage the company’s affairs.
An insolvency procedure where a receiver, or receiver and manager, is appointed over some or all of the company’s assets.
A person registered as a liquidator under subsection 1282(2) of the Corporations Act.
Means a person that has been registered to act as a Trustee under Division 1 of Part VIII in appointments under the Bankruptcy Act.
Report as to affairs
A prescribed form required to be completed by the directors and secretary of a company in liquidation, voluntary administration or receivership, giving details of the company’s assets and liabilities, and the identities of the creditors and debtors.
A motion moved at a meeting of creditors (or a committee)that is approved by the required majority of creditors (more than 50% in number and 50% in value) voting for the motion. For a Special Resolution under the Bankruptcy Act a majority of 50% in number and 75% in value is required. The Corporations Act has no special resolutions.
In relation to an employee of a company, means an amount payable by the company to the employee, by virtue of an industrial instrument, in respect of the termination of the employee’s employment by the company, whether the amount becomes payable before, on or after the relevant date.
A registered liquidator appointed by ASIC or the court to carry out a review into a matter that relates to the external administration of a company. Creditors may appoint a reviewing liquidator to review an external administrator’s remuneration and expenses incurred during the external administration.
Scheme of Arrangement
One of the two types of agreements that can be made between a bankrupt and their creditors (under section 73 of the Bankruptcy Act) during bankruptcy. Acceptance of a proposal for a scheme of arrangement will annul the bankruptcy.
Section 73 Arrangements
Arrangements that are made by bankrupts with their creditors to provide for the annulment of the bankruptcy and the creation of a formal obligation for the ex-bankrupt to satisfy their creditors (wholly or in part) over time.
A creditor who holds a security interest in some or all of a company’s property.
A loan where an asset is used as security or collateral. If you don’t make repayments, the provider may be able to repossess the asset (even if you are bankrupt).
A form of security taken by a creditor over company assets, including personal property and real property (previously known as a charge). Personal property includes tangible and intangible property other than real property (e.g. motor vehicles, equipment, intellectual property and company shares). A mortgage and a hire purchase agreement are each a type of security interest.
An Order made by the Federal Court at the hearing of a creditor’s petition against a personal debtor (a real person as opposed to a company) that makes that person an undischarged bankrupt.
A natural person not on the public register as a director of a company but who directs and manages the company’s affairs and is taken by the Corporations Act to be a director.
Sharp Corporate Practices
Approaches or techniques adopted by certain company directors who are involved in corporate restructures or insolvencies that seek to prevent, avoid or reduce the obligations of the company to pay its creditors. This includes employees for their employee entitlements.
The financial position of being able to pay debts as and when they fall due.
Under the Bankruptcy Act, means a resolution passed by a majority in number and at least three-fourths in value of the creditors present at a meeting of creditors and voting on the resolution.
Statement of Affairs
- When a debtor becomes bankrupt, lodges a debt agreement proposal or lodges a personal insolvency agreement proposal, he or she must complete a statement of affairs on a specific form. The information provided must truthfully disclose all relevant details about his or her current financial position, including details of all debts and assets that are both currently-owned and were recently-owned.
- Where a sequestration order is made, the bankrupt must file his or her statement of affairs within 14 days of being made aware of the order.
A demand in the appropriate form (Form 509H) served by a creditor on a debtor company requiring the company to satisfy or otherwise secure or compound the debt to the creditors’ satisfaction within a 21 day period from service of the notice. Non-satisfaction of the debt under the notice is used to deem that the company is insolvent is winding up proceedings.
An appointment under a state’s property law legislation (for example: section 38 of the Qld Property Law Act) of Trustees to be held by them on the statutory trust for sale or on the statutory trust for partition.
In relation to a company, means a contribution by the company to a fund for the purposes of making provision for, or obtaining, superannuation benefits for an employee of the company, or for dependants of such an employee
An asset with a physical form (e.g. stock or real estate).
Trustee (in Bankruptcy)
A trustee is the person or entity that manages your bankruptcy. They work with you, and your creditors to achieve a fair and reasonable outcome for all.
A transaction that was unreasonable for a company to have entered into. It may be able to be set aside by the company’s liquidator provided it occurred within two years prior to the winding up, and when the company was insolvent or if the company became insolvent by entering into the transaction.
A person who is bankrupt. (That is, someone who became bankrupt and whose bankruptcy has not yet ended.) Bankrupts have various obligations and various restrictions upon their conduct.
A payment made or other benefit given to a creditor by an insolvent company which causes that creditor to be in a more favourable position than other unsecured creditors in a liquidation. The company’s liquidator can seek to recover an unfair preference provided it occurred within six months prior to the liquidation, and when the company was insolvent or if the company became insolvent by making the payment or giving the benefit.
A creditor who does not hold a security interest over a company’s property.
A loan that is not tied to any asset e.g. credit cards.
A proposal to vary the terms and conditions of an existing debt agreement due to a change in the debtor’s circumstances. Creditors vote on the proposal to vary in the same way as they vote on the original proposal. (Section 185M of the Bankruptcy Act 1966.)
An insolvency procedure where an external administrator (called a ‘voluntary administrator’) is appointed to a financially troubled company by:
- the directors
- a liquidator or provisional liquidator of the company, or
- a secured creditor that holds a security interest in the whole, or substantially the whole, of the company’s assets.
The role of the voluntary administrator is to take control of the company, investigate the company’s affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.
An external administrator appointed to carry out the voluntary administration of a company.
A court order for the winding up of a company. The first step in a court liquidation. Usually made after an application by a creditor.