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CLAW314 Corporate Law - Insolvency of a company

   

Added on  2019-10-31

7 Pages2697 Words207 Views
1Cover SheetName of the StudentStudent IDWord Count

2ContentsInsolvency of a company.............................................................................................................................3Introduction.................................................................................................................................................3Insolvency...................................................................................................................................................3Conclusion...................................................................................................................................................6Reference List.............................................................................................................................................7s

3Insolvency of a company Introduction In Australia, it is the Corporation Act 2001 that guides and regulates ‘Insolvency of a company’.Insolvency is no where defined but absence of solvency is considered to be the most precisedefinition of Insolvency. Now, the question arises is what is solvency of a company. It issubmitted that a company is said to be solvent when it has the capacity to pay all of its liabilityand debt whenever the same fell due. (Swaab, 2009)The basic aim for the enactment of the insolvent law in Australia is to bring out a balance ofinterest of creditors, debtor, and public at large. The Insolvency laws try to lay down a fairprocedure so that the assets of the company can be distributed equitably and equally. Theprocedure of insolvency must be such so that the debts so arises can be paid without much delayand adequate. Both the creditors and debtors of the company must be involved in the procedureof insole in order to bring fairness in the matter. It is now important to understand the concepts and law behind insolvency. InsolvencyWhat is insolvency is the main question that needs to be target first?Section 95A of the Act tries to explain the true meaning of Insolvency. As per section 95 A, sub section 1 , a company is solvent when it has the ability to pay all of itsdebts when the same become payable. As per sub section 2 of section 95A, any organization or aperson is considered to be insolvent when the same is not solvent in nature. In Sutherland vHanson Construction Materials Pty Ltd (2009), the Supreme Court of New South Wales hassubmitted that what is solvent can be determined as per the cash flows of the company. (Latimer,2012)Thus, the two main elements that must be looked into in order to determine the insolvency of thecompany are:i.Debts - That the company is at the obligation to pay its dues;ii.Due and Payable - That the financial position of the company is not such that it isable to pay its debts when the same became dues and payable.It is thus submitted that the contrary of solvent results in insolvency of anyorganization/individual.In recent times the insolvency of the companies has been tremendous in nature. The rate withwhich the insolvency of the companies is increasing is tremendous. Around 10,000 companiesgo into administration every year. In around April 2011, there were around 9747 companies thatwent into insolvency. Compared with the previous five years, the increase is approximately16%.. compared with 2010, there is an increase of 6%. The secured creditors ahs appointed 1356in 2011 which is 73% increase from the last five years. In 2011, the first seven months saw 5852administrations. In June 211, there were around 1027 insolvencies that took place. There werearound 240 companies that went into court liquidation, 3835 in creditor’s voluntary liquidation,1219 in receivership and 1332 in voluntary administration. (Insolvency, 2016)Thus, the rate with which the insolvency of the courts is increasing is tremendous. Once it is established that a company is insolvent then what is the actions that must be taken bythe company.

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