Businesses Unable to Manage their Debt File for Bankruptcy
Owning your own business can be an exciting venture but apart from declaring the income from the business, there are also certain legal requirements which must be met. A business needs start up capital, a good bookkeeping system to check books on a regular basis, ensure a healthy cash flow, which will also require cash reserves for those slump periods when salaries will still need to be paid.
It can be a sobering reality check when a once flourishing business starts seeing cracks and it cannot pay its bills; the cash flow is such that it can’t pay its creditors, and the financial situation is beyond hope, know what bankruptcy options are open to a business is important to work out a way forward for a business. Unfortunately there are some businesses who wait too long to file and their creditors impose involuntary insolvency on them. It is better to rather reach an agreement with your creditors and to go bankrupt voluntarily. If as a company you agree to being made bankrupt, the judge will declare you bankrupt, and this is known as a sequestration order.
Business Insolvency at All Time High in Australia
Bankruptcies in Australia are increasing and the Australian Securities and Investments Commission reports that companies going bankrupt from 1999 to 2014 have reached an all time high. Businesses experiencing financial difficulty know that declaring bankruptcy is not an easy way out of their financial predicament and obligations. Filing for insolvency will create a bad credit history and this can impact a company’s credit score and make it difficult to get credit in the future.
A Trustee is Appointed to Manage a Company’s Assets
In Australia the Australian Financial Security Authority (AFSA) is the governing body who regulates the insolvency system in Australia. With the completion of filing documents, the insolvency process commences. Three forms need to be completed and lodged with AFSA for the bankruptcy process to commence. These can be obtained through AFSA and includes a Statement of Affairs stating your reasons for filing bankruptcy, a Debtor’s Petition which stipulates what you need to claim as well as signing different acknowledgements that you understand the entire process.
Should a company’s insolvency status change, certain agreements may be altered. All insolvency cases are permanently registered at the National Personal Insolvency Index. They are an on-line public register that, for a fee, can be accessed.
Insolvency has different overtones in each country and according to the Bankruptcy Act 1966, in Australia a business is assigned a trustee to manage the assets for the duration of the bankruptcy. This appointed trustee will decide on the extent of the insolvency to be declared, taking into account the debtor’s declarations. If the debtor continues to run the business while bankrupt, they will need to keep all accounts showing business transactions and financial position. All books, records and financial statements must be made available to the trustee. The business however, won’t be able to trade under a registered business name without informing third parties that they are bankrupt.
A Company is Bankrupt for 3 Years
Funds left after assets have been sold are paid out evenly to creditors. In Australia, bankruptcy law stipulates that a company will remain bankrupt for three years, but this can be extended to longer, based on individual cases. The insolvency case is permanently registered at the National Personal Insolvency Index (NPII), a public register that anyone can access on payment of a fee.
Bankrupt Offices still have Tax Obligations
When a business is closed, it will still have obligations to the Australian Taxation Office (ATO) such as lodging all activity statements and final returns, cancelling GST registration, and record retention among others. According to Australian taxation law, a company is required to retain all business records for five years such as sales, employee payments and payments to other businesses.
There are consequences to declaring bankruptcy, but even so, it may be your only option. You won’t be able to be a director of a company or even be involved in its management without the permission of the Court during the company’s bankruptcy term. If the company does, however have a good core business which will allow it to trade in the future, the company appoints an administrator. The administrator is an insolvency practitioner who works independently of the Company.
When making a success of your fantasy doesn’t materialize
Maybe you fancied yourself an entrepreneur but your company never really got off the ground. Call AFSA or MyTaxDebt to discuss your options. Some businesses avoid bankruptcy because they don’t understand all of its consequences, but by speaking to professionals, you will soon discover that it can be the best option for avoiding falling into deeper debt.