Unable to pay bills (insolvency)

Insolvent means that a corporation cannot pay its debts, as and when they fall due. Solvent means that a corporation can pay its debts, as and when they fall due. 

What to do if you suspect insolvency

If you have concerns that your corporation is trading while insolvent, nearing insolvency, or a creditor is chasing payment from your corporation you must act early, get good financial information, seek advice and take steps to improve the corporation's financial position.

There are serious consequences if you do not do these things. 

Directors should:

  1. Act quickly
    • Discuss the situation at a board meeting.
    • Make insolvency a priority.
  2. Stop the corporation taking on new debts
    • Do not order goods, sign contracts or borrow money unless the corporation can pay for them.
    • Be careful about making commitments that the corporation may not be able to meet.
  3. Get up-to-date financial information
    • Review cash flow, bank balances, debts and unpaid bills.
    • Find out exactly how much money is owed and when payments are due.
  4. Seek professional advice
    • Talk to the corporation's accountant, auditor, bookkeeper or a qualified insolvency adviser – getting advice early will also give your corporation the best chance of recovery.
  5. Reduce spending
    • Delay non-essential spending.
    • Look for ways to reduce costs.
  6. Improve cash flow
    • Collect money owed to the corporation.
    • Review funding opportunities and other sources of income.
  7. Talk to creditors
    • Contact suppliers, lenders and other creditors early.
    • Discuss payment arrangements if necessary.
  8. Monitor finances closely
    • Review financial reports more frequently.
    • Keep track of whether the corporation can pay its debts when they fall due.
  9. Consider all options
    • Depending on the circumstances, this could include restructuring operations, seeking additional funding, selling assets, or obtaining specialist insolvency advice.

Who to ask for help

Insolvency advice is best sought through a licensed professional who can provide advice specific to the circumstances of your corporation’s situation. You can try:

ORIC cannot provide legal or financial advice as to whether or not a corporation is insolvent, or your duties as a director in situations of insolvency. 

Legal obligations and consequences for directors

Each director has a legal obligation to prevent insolvent trading and to not allow the corporation to keep trading while insolvent. Individual directors can be fined or go to prison for allowing a corporation to trade while insolvent. 

Read more on legal duties of directors under the CATSI Act.

Directors are responsible for the corporation paying its tax and super on time. If the corporation doesn’t pay them by the due date, current and former directors may have to. 

Check the ATO website for more information on the director penalty notice regime. 

Ways insolvency may be addressed

There is no single solution to insolvency. The best option depends on the corporation's circumstances and should be considered with professional advice.

If the corporation cannot recover, professional advice may recommend formal insolvency processes such as:

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