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Bankruptcy and liquidation are often interchanged when discussing solutions for businesses and individuals dealing with a financial crisis. However, these two terms do not have the same meaning. Both may involve insolvency — which is the inability to meet debt obligations — but that is where the similarities end.

What Is Bankruptcy?

Bankruptcy is strictly for individuals and is a legal process that occurs when someone is unable to pay their debts. It is always best to enter into voluntary bankruptcy rather than waiting for the courts to order it. Individuals can petition the court when filing for voluntary bankruptcy. Involuntary bankruptcy occurs when one or more creditors petitions the court and the courts issue a judgement. Creditors must be owed at least $5,000 to file for judgement against individuals. 

It is important to note that if a court issues a judgement against you, it creates a lien on the debtor’s property that does not automatically get dismissed.

When to Choose Bankruptcy

Bankruptcy is a formal legal agreement that can free individuals from the burden of their debts. Whilst opting for bankruptcy provides a solution for those fraught by anxiety from debts that they are unable to repay, there are options to consider before filing.

Individuals can:

  • Reach out to creditors to ask for more time to pay.
  • Work with a financial counsellor who can help organise their finances.

Debt agreements are another option for individuals. They are a formal way to settle debts without going into bankruptcy. Individuals who wish to go this route must meet eligibility requirements. Creditors agree to a set amount of money from the debtor. Once that sum is paid, the debts are considered settled. 

Note that there are consequences to debt agreements. They remain on your credit report for five years or more, and your name stays on the National Personal Insolvency Index for five years or more.

What Is Liquidation?

Liquidation is the insolvency process available to companies unable to pay their debts. It also is the only way for businesses to legally wind up and cease operations.

As with bankruptcy, liquidation is either voluntary or involuntary. Voluntary liquidation can be initiated by a company’s shareholders or its members. If a creditor files a petition to recover monies owed, liquidation can be court-ordered.

Liquidation is the right decision if companies:

  • Cannot repay debts to their creditors
  • Cannot meet obligations to the Australian Tax Office (ATO)
  • Are too small to engage in Voluntary Administration
  • Have limited assets that would allow them to continue conducting business

Once the liquidation process begins, a liquidator will either be selected by the company (voluntary liquidation) or appointed by the courts (involuntary liquidation). The liquidator takes control of all assets and performs a detailed investigation into why the company failed. A final report is issued to the Australian Securities and Investments Commission (ASIC) once the liquidator finishes the enquiry.

Seeking Help from the Professionals

If you have made the decision to file for bankruptcy or liquidate your business, trust the professionals to guide you through the process. We have more than 30 years of experience assisting clients throughout Australia about insolvency, bankruptcy, and debt management.

The Australian economy is affected by several soft factors that can push a business toward bankruptcy. Interruptions in global trade due to COVID-19 and record-high unemployment rates are all driving forces.

Small businesses were hit especially hard during the first two quarters of the fiscal year, and the hurting does not seem to be ending anytime soon. Even with government schemes in place to assist, no industry sector is spared, and no company is immune to financial distress.

Follow the Signs

There are warning signs of impending financial collapse if immediate steps are not taken to set things back on track. Business owners who pay attention to these cautionary indicators often can right the ship before it is too far off-course to be saved.

1. You are losing clients/customers

It is perfectly normal to cycle through clients from one year to another, depending on the nature of your product or service. An ongoing decline in sales without the potential for replacement of lost revenue is a sign it may be time to hire a financial advisor to strategise.

2. You are losing your best talent

Employee turnover eats into any business’s budget. Searching for suitable replacements, onboarding, and training new hires can be time-consuming and costly. It takes the average Australian company 39.2 days to fill vacant roles. One-off staff departures are normal and not a sign of trouble. But when your best and brightest start dashing toward the exit at once, it is time to address the underlying issues.

3. You have a cash flow shortage

Cash flow shortages are somewhat normal, especially for small businesses. Clients that are slow to pay and tightened lending criteria contribute to this issue. If this is an ongoing problem, it is time to take action to prevent it from winding down your business for good.

4. Your expenses are escalating

Spending money faster than you earn it is never a wise financial strategy, yet it is an issue with which many businesses struggle. If your business is operating in the red more than the black, it is time to get brutal about trimming expenses. Working with a financial advisor who specialises in business insolvency can help.

Trading While Insolvent

Unlike the other warning signs, trading while insolvent is a final cry for help for any business. The practice also happens to be illegal, which can open a whole new can of worms for businesses already struggling financially. If matters have gotten to this level of seriousness, your business is in immediate need of help from a financial advisor skilled in financial insolvency. Getting the right advisor on board quickly can mean the difference between your business failing or restructuring and rebuilding.

The Bottom Line

While not all of these signs mean a business is headed toward Insolvency, they are common indicators of financial struggle that should never be ignored. The knowledgeable team at Doug Constable Group can help get your business back on solid footing. Reach out today to schedule a no-obligation consultation.


Going Bankrupt or in Liquidation: Tips for Choosing the Right Advisor

Going from bedrock to bankrupt can be a scary experience.

When asking creditors for more time to pay, negotiating flexible payment arrangements, or offering smaller payments to settle the debt do not work, bankruptcy is the final solution. Generally, it is advisable for individuals and businesses to voluntarily file for bankruptcy or liquidation instead of waiting for creditors to seek permission from the courts to order you bankrupt.

Having the right advisor to help you navigate through bankruptcy or liquidation is an important step in the process. Here are four options debtors can choose from.

1. Financial counsellors

Financial counsellors are recommended by the Australian Financial Security Authority (AFSA) as a resource for dealing with unmanageable debt. They offer confidential and free advice about options for sorting through mounting debt. Best of all, they are independent and will work toward achieving your best interests, not that of creditors. However, very few will actually walk you through to the whole process of Bankruptcy.

2. Solicitors

Solicitors are great with legal matters but may not be familiar with accounting and insolvency and helping with the ongoing information that may be required. Debtors who choose this option should locate a solicitor who specialises in bankruptcy and liquidation the difficulty being they also work for trustees and liquidators who provide the majority of their work. Also, they tend to refer you to the Trustees that they get work from, not necessarily the one that will do the best job for you. 

3. Accountants

Accountants can help determine if there are other financial options before claiming bankruptcy. Some accountants focus on liquidation and bankruptcy can lead you through the process if you decide to proceed. Many will further refer clients to a registered trustee that is in their discussion group. In Australia the average accountant has 3 clients per year facing insolvency normally they don’t have a lot of experience in dealing with the complexities of Insolvency.

4. Private trustees

Private trustees are the preferred option when claiming bankruptcy. Creditors can nominate trustees, but I recommend avoiding this at all costs. When creditors appoint, the trustee is there with the creditor’s interests in mind and may not be impartial. Creditor-appointed trustees can be very aggressive and may not offer the best solutions, so it is best to avoid going this route.

5. Insolvency Advisors

Good Advisors have a team of accountants and solicitors they can refer to they will also have a panel of trustees and liquidators. They can help choose one that fits your needs. My clients are provided with three to four independent trustees and liquidators to choose from. There is an emotional component to bankruptcy, and good trustees recognise and understand that aspect of the process. 

Over the years, I have dealt with a large number of trustees. Whether you go with a private or government trustee, find one that you can talk to. I have found The Government Trustee AFSA quite good to deal with. The majority of my Bankruptcy clients would go to them. With Liquidations we need to use a Registered Liquidator

Keep in mind a trustee should be there for you as well, not just the creditors. They help draw a line in the sand and set you on the right course toward financial recovery. When a letter comes out requesting more information from the trustee, answering it quickly is always the best approach. Be certain to answer the inquiry completely and satisfactorily to reduce the likelihood of complicating the process. This is where someone with experience is important to guide you through the entire process.

Yes, I am an Advisor, I work for you through the whole process, I have been through it personally, I use my 30 years’ experience to protect your interests. I have an idea of the emotions you are facing. It doesn’t need to be the end. Using the experience to build the future is the most important thing.


4 Advantages to a 12-Month Bankruptcy Discharge Period

Insolvency laws in Australia were a hot topic during Prime Minister Malcolm Turnbull’s three years in office. Affectionately referred to as the “free to fail” movement, Turnbull advocated for a reduction in the country’s bankruptcy discharge period from three years to one.

It is not the only time the issue has taken the forefront in Australia, which is known for having some of the most punitive bankruptcy regimes in the world. Lowering the discharge period was previously debated in the legislature several times without passage.

The Bankruptcy Act of 1966 outlines the provisions for debtors to file for bankruptcy. During the COVID-19 pandemic, provisional changes to the law were made. The temporary debt protection period was extended from 21 days to six months, and recovery action by unsecured creditors is prohibited for six months.

Now is an opportune time for the government to re-examine the discharge period as the global economy works hard to recover from the effects of the pandemic. There are several advantages to adjusting the period downward from three years to one.

1. It can stimulate the economy

Reducing the insolvency period from three years to one year can encourage entrepreneurial activity and reduce the stigma associated with bankruptcy. When an individual is in bankruptcy, it forces them into an exclusionary period, during which time they are extremely limited in business activities. They cannot act as a company director and are restricted in their access to finance, employment opportunities and the ability to travel overseas. Bankrupt individuals who are this severely restricted from what is considered routine business activity will have little opportunity to stimulate the economy through the creation of new companies and jobs.

2. It can get people back into the workforce quicker

Bankruptcy usually does not affect an individual’s current employment situation. However, it can count as a strike against them when applying for certain jobs in private industry. While it is illegal for a government agency to refuse to hire someone who has filed for bankruptcy or fire a current employee who files, the private sector is not subject to the same rules. Private employers are permitted to weigh a job applicant’s bankruptcy status as part of the hiring process, especially if the person would be responsible for company finances as part of their job duties.

3. It can remove segmentation associated with bankruptcy 

Segmentation affects an individual’s credit by associating them with a higher risk to lenders. In doing so, the vicious cycle of debt could continue by subjecting these borrowers to riskier interest rates and higher-cost credit options.

4. It can recognize a no-fault bankruptcy status

Some people end up in bankruptcy through no fault of their own. Job loss or mounting medical bills for an unexpected illness or injury can quickly push someone beyond their financial means. Reducing the insolvency period would help people in this situation to recover more quickly.

One of the biggest arguments against lowering the discharge period is that it will result in volume increases for new bankruptcy claims. The Australian Financial Security Authority (AFSA) and private trustees can handle the expected volume increase in bankruptcy filings, so that should not be used as an excuse to delay further action.


The Coronavirus pandemic has left the global economy teetering. Despite the efforts of governments to provide income support, such as JobKeeper payments, large-scale layoffs are likely. Shifts in consumer behaviour, driven by necessity towards online shopping platforms, are forecasted to crystalise and become the new normal. This heralds doom for many bricks-and-mortar businesses without the capital to inject into digitisation or drop-shipping distribution models. As recurring shockwaves start to ripple throughout each industry, the personal impacts of the global downturn will start to surface.

Recent changes benefit many, but not all

On 25th March this year, the Federal Government instituted changes to bankruptcy laws offering temporary relief and protection to people in financial difficulty. Clearly, the government foresees a wave of debt problems coming and seeks to minimise the damage. Yet despite the increase threshold for bankruptcy notices from $5,000 to $20,000, one only need cite Australia’s status as the holder of the world’s second-largest household debts to know many will benefit little from this change.

The personal toll of economic downturn

In a recent publication citing the mental health ramifications of COVID-19, The Black Dog Institute cited the unemployed and casualised workforce as being particularly vulnerable to depression and anxiety. It seems only logical to place small business owners in this group as well. Collectively, the enhanced financial insecurity caused by economy-wide stoppages in commercial activity, places them at a much higher risk of experiencing unbearable financial stress, resulting in mental illness.

Dealing with wrong thinking

Much like mental illness, bankruptcy carries a stigma that often prevents people seeking help. Mounting fears, shame, withdrawal and avoidance – all ordinary symptoms of depression and anxiety – become the daily mental diet of a person struggling under severe financial pressures. And since our culture, rightly or wrongly, assumes that an individual’s financial situation is entirely the product of their own behaviour, those suffering financial stress are more likely to turn to toxic forms of mental positivity rather than pursue available avenues which can restore their financial stability and mental health.

It’s time to lift the stigma on Bankruptcy for good

The stigma of Bankruptcy is the hangover of the ancient (and barbaric) practice of imprisoning debtors unable to repay their creditors. To this day, the aura that creditors hold supreme, unlimited power to deprive an individual of all their freedom and property persists. While support service websites encourage dialogue about financial and mental health; simply do an internet search of ‘mental health’ and ‘debt’ – you won’t find a single bank website addressing the topic.

The result is a stifling silence about the important rehabilitating role Bankruptcy plays. Bankruptcy laws use the word ‘rehabilitation’ to describe the process of restoring a person’s right to property ownership and full social participation. Though while it isn’t the express purpose of Bankruptcy to restore a person’s well-being, in effect, that is what it does. The fresh start offered through bankruptcy isn’t simply a means for renewed financial stability, it provides those experiencing extreme stress a rational pathway towards renewing personal wellbeing.person’s well-being, in effect, that is what it does. The fresh start offered through bankruptcy isn’t simply a means for renewed financial stability, it provides those experiencing extreme stress a rational pathway towards renewing personal wellbeing.

At Doug Constable Group, we’ve long held the view that bankruptcy isn’t just about debts or property – it’s about people. It’s vital that intuitions and professionals working closely with people experiencing financial stress increase their awareness of the enormous psychological stresses facing financial

challenges can bring. And in doing so, work towards removing the ‘Mark of Cain’ attitude surrounding bankruptcy.

Much like the hand-sanitising and social-distancing we’ve all conscientiously practiced – it may save lives.


For the first time in 29 years, on June 3rd Australian’s heard the ‘R’ word used to describe the nation’s economic health. Beleaguered treasurer Josh Frydenburg pointed to graphs depicting in wiggly lines the tragic tale of a March quarter slammed by devastating bushfires and a global economy sent sideways by the onset of COVID-19.The short version of the story: we were in a recession.

Yet, he insisted, it could have been much worse. A raft of measures was rolled out, including the largest financial lifeline in Australian history, as well as significant changes to laws governing bankruptcy and insolvency. Most noteworthy of these changes included:

An increased threshold for issuing a creditor’s statutory demand from $2000 to $20,000; An increased threshold for commencing bankruptcy proceedings from $5,000 to $20,000;

An extended period for responding to a creditor’s statutory demand or bankruptcy notice from 21 days to six months; and,

An extended period within which unsecured creditors cannot take action to recover a debt against a debtor who declares an intention to present a debtor’s petition from 21 days to six months.

Despite what many economists claim was a world-class government response, few believe we’ve seen the worst of the economic fallout.

GDP figures from the Bureau of Statistics show Australia’s economy shrank 0.3 per cent in the March quarter. Though it’s important to remember, Australia hadn’t experienced its first case of Coronavirus until March 3rd. The prospect of a drawn-out economic downturn looms as already, 1.4 million Australians report experiencing mortgage stress, with fears that approximately 100,000 may default after JobKeeper support ends.

Evidently, these payments cannot go on indefinitely.

If the March quarter figures are the canary in the coal-mine, we can expect a far sharper decline to show up when June quarter figures are released. The painful equation of replacing Government support with real incomes derived through business activity needs to be filled.

Dubbed the ‘COVID Safe Harbour’ amendments, the Commonwealth government introduced changes to the Corporations Act to help businesses weather the economic storm. These included a loosening of restrictions on insolvent trading restrictions to allow businesses to recover from short-term liquidity issues without putting directors personally at risk.

For most businesses in financial distress due to the COVID-19 crisis, the measures will fall short.

The changes do not cover a director from debts incurred before the amendment changes on 25th March. Businesses have a six-month window, meaning that as September rolls around (precisely when JobKeeper payments will end), the protection offered the ‘Safe Harbour’ will be withdrawn. While praise has been heaped on our leaders for injecting $130 Billion into the economy and adjusting laws to offer hope to individuals and businesses trying to struggle through, it’s clear the horizon for economic recovery is further off than these responses account for.

Recently, ASIC chairman James Shipton warned Australia might not have enough liquidators and administrators to deal with the oncoming wave of corporate collapses. Clearly, without the necessary return to business activity by the time JobKeeper payments cease, a vicious cycle of company closure leading to increased unemployment and rapidly-spreading risks of personal bankruptcy will surely follow.

With heavy restrictions still being imposed on business activity, the likelihood of a ‘J-curve’ recovery, like the one predicted last time we heard the ‘R’ word, is low. Governments need to take a second look at these amendments and the clock they’ve put on the economy to get back to full steam, lest a broader and perhaps far more savage blight than a viral pandemic is unleashed on the Australian public.

the one predicted last time we heard the ‘R’ word, is low. Governments need to take a second look at these amendments and the clock they’ve put on the economy to get back to full steam, lest a broader and perhaps far more savage blight than a viral pandemic is unleashed on the Australian public.

and perhaps far more savage blight than a viral pandemic is unleashed on the Australian public.