Definitions of words, terms and phrases
Administrator
A licensed insolvency practitioner appointed as Voluntary Administrator under Section 436A, B or C of the Corporations Act.
Bankruptcy
A process whereby individuals who are not able to pay their debts have had independent third party called a Trustee appointed
to take control of their financial affairs, which involves taking possession of their assets and dealing with their creditors.
The process lasts three years.
Composition
Formal agreement under Part X of the Bankruptcy Act binding on all creditors whereby creditors receive either their debt
over an extended period of time or part payment of their debt in full and final satisfaction.
Controlling Trustee
Professional appointed under the authority signed under Section 188 of the Bankruptcy Act to take control of an individual
debtors affairs and to convene a meeting of his or her creditors. Either a practising solicitor or a registered trustee
take such appointments.
Creditor
One to whom money is owed.
Creditors Petition
The process by which a creditor who is owed a debt may petition the Federal Court or the Federal Magistrates Court
for the bankruptcy of the debtor or the Supreme Court for the winding up of a debtor company.
Creditor's Voluntary Liquidation
A voluntary winding up of an insolvent company initiated by a shareholders meeting and creditors meeting.
Debtor
One who owes money.
Debtors Petition
If there is no alternative to bankruptcy a debtor or joint debtors may become bankrupt voluntarily by completing and
filing with the Official Receiver a prescribed document called a Debtors Petition along with a Statement of Affairs.
Declaration of Solvency
Declaration made by all of a majority of directors at a validly convened meeting of directors declaring that the company
can pay all its debts within 12 months of the declaration. It is a formal document which is signed and lodged with the Australian
Securities and Investment Commission preparatory to a Members Voluntary Liquidation.
Deed of Arrangement
Deed entered into under Part X of the Bankruptcy Act where it is a combination of a Deed of Assignment and a Composition.
Deed of Assignment
Deed entered into under Part X of the Bankruptcy Act where the divisible assets of the Debtor are assigned to the Trustee
who realises them for the benefit of the Debtors creditors and distributes the funds to the creditors in accordance with
the Bankruptcy Act.
Deed of Company Arrangement
A formal arrangement orchestrated by procedures specified in the Corporations Act between the debtor and creditors
permitting a compromise binding on all its creditors.
Execution
The process after a creditor obtains judgement where the Sheriff takes possession of assets belonging to the debtor
sells them and pays there proceeds of sale to the judgment creditor.
Informal Agreements with Creditors
This is an arrangement where a debtor had done individual deals with its creditors to either repay the debt in full
over an extended period of time or make a part payment to the creditor in full and final satisfaction of the debt due. An
informal arrangement could also include an initial moratorium period. It is a term used to cover any deal where formal insolvency
procedures are not used.
Insolvency
The state an insolvent finds itself in being unable to pay its debts as and when they fall due.
Insolvency Practitioner (Licensed)
A person authorised by a licensing body for corporations being the Australian Securities and Investment Commission
and acts as office holder in insolvency proceedings.
Insolvent
A person or business unable to pay their debts as and when they fall due.
Insolvent Trading
Where a company continues to incur credit and the directors of the company know it will not be able to pay the debts
incurred as and when they fall due. Directors commit an offence under the Corporations Act by failing to prevent the company
from incurring credit.
Internal Controls
Systems of cross checking and balancing to assist business owners to ensure the opportunity for theft and fraud are
minimised in a business. It is also the method by which business owners ensures the accuracy of the management accounts
and financial statements presented to them.
Judgement
Court recognition of a debt.
Litigation
Adversarial legal process through the courts.
Liquidator
Licensed insolvency practitioner appointed to wind up a corporate entity.
Members' Voluntary Liquidation
A solvent liquidation where shareholders appoint a liquidator to realise assets and settle all the company's debts
within 12 months.
Moratorium
Period of time in which a debtor is not obliged to make payment towards its debts generally if they are statutorily
enforced creditors will also be barred from initiating legal action. It is a term commonly associated with voluntary administration
or informal arrangements with creditors.
Official Liquidation
The winding up of a company initiated by an application to the court, usually by a creditor or by a member of the company
itself.
Official Receiver
Government officer who runs the Insolvency Trustee Service of Australia in each state and accept all Bankruptcies where
there has been no private Trustee consent. They also supervise private Trustees.
Preference
Transfer of property by person who is insolvent in favour of a creditor is void if the transfer gives the creditor
a preference over other creditors and was made within the prescribed period being 6 months from the commencement of bankruptcy.
Certain defences exist.
Provisional Liquidator
A holding process applied to companies initiated by application to the Supreme Court. It can only be applied for if
the court has been petitioned for a court liquidation. It lasts until the court hears the petition for the liquidation.
A Official Liquidator is appointed to control the company and maintain the status until the court makes its final decision
as to the fate of the company.
Receiver
A licensed insolvency practitioner appointed by the holder of a floating charge over the assets and undertaking of
a Debtor who has defaulted under the terms of the charge.
Secured Creditor
A creditor holding a charge over assets of a Debtor securing the debt due to that creditor.
Trustee in Bankruptcy
A licensed insolvency practitioner registered under the Bankruptcy Act who administers and realises the assets of a
bankrupt with a view to distributing proceeds for the benefit of creditors.
Voluntary Administration
A formal moratorium arrangement under the Corporations Act usually 28 days (although it can be extended a further 60
days) where the company which is insolvent or about to become insolvent and its affairs are put under the control of an
independent third party at the end of which a decision is made by creditors as to the fate of the company. Voluntary Administrations
can be implemented by the company, a liquidator or provisional liquidator or a creditor holding a charge over all or substantially
all the assets of the company.
Work outs
The process by which a struggling business trades out of its difficulties. The process is often presided over by an
insolvency practitioner at the behest of the business lenders. It can include the sale of surplus assets, the introduction
of outside equity or the process of refinancing.
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