Insolvency Myth #1 – The ATO get priority for tax
This is one which we still hear quite often, despite the
Australian Taxation Office's (ATO) priority ceasing in 1993!
Since then all debts due to the ATO rank equally with other
The only claim for which the ATO has a priority is in respect of
unpaid superannuation guarantee charge.
Insolvency Myth #2 – Insolvency practitioners
always get paid first
Contrary to what some believe, insolvency practitioners
don't always get paid first, and often we don't get paid at
In court liquidations and bankruptcies, petitioning
creditor's costs rank ahead of most other claims including an
insolvency practitioner's remuneration. The extent of secured
creditors in an administration will also have a bearing on the
funds available to meet remuneration.
Often there are no assets available to be realised and no other
recovery actions capable of being pursued. In those cases we still
have many statutory obligations which we must attend to
notwithstanding that there are no funds available to meet our
remuneration and disbursements.
Insolvency Myth #3 – If my company goes into
liquidation I will go bankrupt too
Some company directors are under the impression that the
liquidation of their company means that they are also made
The personal financial affairs of the director are separate and
distinct from those of the company of which they have been a
director and whilst bankruptcy may be inevitable in some cases, is
it not automatic and will depend upon the director's own
financial position and the extent to which they may have guaranteed
any liabilities of their company.
Insolvency Myth #4 – Administrators and
Liquidators work for the directors
Although an insolvency practitioner may be appointed by the
directors of a company (as may occur in a voluntary
administration), or the company's shareholders (such as a
voluntary liquidation), the appointed practitioner is bound to act
in accordance with the Corporations Act and must act in the
interests of all creditors.
This is to be contrasted with a receivership where the appointed
receiver is generally working for their appointor such as a bank or
Insolvency Myth #5 – If I go bankrupt I will lose
Despite what some may think when they first seek advice from us
regarding bankruptcy, they will not lose everything they own as
there is certain property which a bankrupt is entitled to retain.
This is known as non-divisible property.
In addition to being able to retain normal household furniture,
clothing etc, a bankrupt is entitled to retain tools of trade and
motor vehicles up to certain prescribed values.
The Bankruptcy Act also restricts other property from being
divisible, subject to certain criteria being met, including
superannuation and the proceeds from personal injury claims.
Insolvency Myth #6 – Being a director of a company
in liquidation restricts me from being a director of other
Generally a person can be a director of as many companies as
they wish subject to restrictions within the Corporations Act which
specifically disqualify persons from managing a corporation.
The Corporations Act provides for the automatic disqualification
of persons from managing corporations where a person has been
convicted of certain offences relating to contraventions of the Act
or dishonesty, they are an undischarged bankrupt or they are
subject to a Personal Insolvency Agreement under Part X of the
Bankruptcy Act. These automatic disqualifications apply unless the
person has obtained the leave of the Court to manage a
Once a person is discharged from bankruptcy they can be a
director again. Similarly, once a person subject to a Personal
Insolvency Agreement has fully complied with the terms of the
agreement they can be a director again.
In addition to being automatically disqualified in the
circumstances mentioned above, the Australian Securities &
Investments Commission has the power to seek a banning order
against a person from managing corporations where they have been
involved in two or more failed companies.
Insolvency Myth #7 – A bankrupt cannot operate a
It is possible for a bankrupt to operate a business whilst they
are bankrupt. The main restrictions in relation to operating a
business include that the bankrupt must trade under their own name
or if they trade under an alternative name, they must inform
everyone that they deal with that they are bankrupt.
In addition, whilst there is no restriction on a bankrupt
incurring credit when they are bankrupt, they are obliged to
disclose their bankruptcy status to any prospective credit provider
if the amount involved exceeds a prescribed limit.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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