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claw314 : corporate law assignment

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Added on  2019-10-31

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This essay include the answer to several questions that have been related to the insolvency of organisations within Australia so that reason behind the same can be analyzed. It has been noticed that the organisations are winding up their members or creditors so that they do not have to liquidate the organisations. The issues that discussed in the report are identifications of signs that indicate the organisation is getting insolvent and an analysis of the actions taken by the board of directors. It will also discuss some possible liabilities of company directors which can become part of insolvency followed by different avenues accessible to the company related to directors of the company. It includes the difference between voluntary and involuntary interventions by different concerning parties. 

claw314 : corporate law assignment

   Added on 2019-10-31

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Corporate LawA Comprehensive Study about Insolvency of AustralianCompaniesStudent Roll No.
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Corporate LawCorporate LawAn organization or an individual, which can no longer meet the financial commitments withthe creditors, and pay its debts on time, is deemed to be insolvent. Before a company isdeclared as insolvent, the higher authorities would try to make alternative arrangements forthe payments by informal agreements with its lenders. Insolvency in most cases arises froman improper planning of cash flow of a business and lack of proper strategies to counterunexpected financial calamities (Mäntysaari, 2011). According to Section A of theCorporations Act, a company is insolvent if it is unable to pay its debts when it becomes dueand has defaulted on its outstanding payments on more than one occassion. The differentindicators that a company is becoming insolvent are:When the cheques issued by a company is dishonoured on more than one occasion.When there are increasing legal complications for the company in the form ofwarrants or summons.When the company faces increasing difficulties to pay its creditor’s and finds it hardto arrange alternative sources of funding on time.To counter the risk of insolvency, the Board of Directors can try negotiating with thecreditors to work out a workable payment method (Valackienė and Virbickaitė, 2011). Thedirectors may try to convince the creditors by devising a payment frequency and a fixedpayment amount which could be met every month without fail. All the unwanted and fringeexpenses are to be avoided immediately. The excess number of staff, the advertising expensesand the rents paid for the premises can be reduced by confining themselves to a morecompact space. Other measures like selling the assets of the company and chasing the debtsPage 2
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Corporate Lawcan also help the company recover from the impending danger of dissolution afterinsolvency.There are many potential risks for the Board of Directors in the event of a company beinginsolvent. The higher authorities in a Company would always be well aware of the currentfinancial position of the Company and the associated risks if it would be winding up soon(Kitromilides, 2011). If the Company fails to repay its debts, the liabilities of the companywould be passed on to the Directors under certain situations. One such circumstance is whenthe Director of the Company decides to be the guarantor for the debts taken over the personalassets. In such a scenario, he would be held responsible for the repayment of the debts.Similarly, the Company is not supposed to be involved in trade while it is already or soon tobe insolvent. It is the personal responsibility of the Board of Directors to ensure that theinvestors are not in potential risk by involving in trading while at the risk of being insolvent.Another scenario is when a higher authority of the Company decides to intentionally transferthe assets of the Company to a new one. This transfer may be in the form of transfer of fundsor transfer of assets to the new Company. There is also another term associated with insolventcompanies that are involved in trading called as ‘wrongful trading’. Wrongful trading denotesthat the company has been involved in trading even after the Directors had been able toconclude that further investing in the company would incur huge losses to the potentialinvestors (Arsalidou, 2010).If there is an impending threat of a Company being insolvent, there are a few expedientsolutions that the Board of Directors can adopt as feasible measures to counter an immediatedissolution. The most important thing to be done in such a scenario is to try and convince theCreditors that the debt would be paid in full without delay (Mazarr, 2012). An informalagreement is made with the creditors which ensure that the payments would be done on aPage 3
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