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Introduction This chapter is the first of two chapters that examine what can happen when a company cannot pay all or some of its debts. This chapter discusses the types of action that can be taken other than winding a company up, focusing upon receivership, schemes of arrangement and voluntary administration. This chapter commences with a consideration of the state of insolvency, and how it may be determined. This is a complex question, relying on an array of information specific to each company, beyond that company's demonstrated assets and liabilities according to a balance sheet. Each of the actions which the chapter considers are also demonstrative of different aspects of insolvency law, with different motivations and consequently vastly different outcomes. Receiverships, in particular, differ from other types of arrangements discussed in this chapter because they usually involve a receiver being appointed to look after the interests of one secured creditor. As a consequence, the receiver's main responsibility is to protect and enforce a security interest that has been granted by the company to that creditor over particular company property. The duties and powers of receivers vary accordingly from those of administrators and liquidators. In contrast, schemes of arrangement and voluntary administrations usually involve an impartial evaluation of the company's financial position, followed by a binding agreement between the company and its creditors, or a group of creditors. The policy behind Australia's voluntary administration process is corporate rescue, which impacts on the way in which it proceeds in contrast to receivership and liquidation. The administrator has responsibilities to report to the creditors as a whole, and to seek an outcome for the unsecured creditors which leaves them with no less than they would have received on a winding up. These arrangements may therefore be useful in cases where the whole or part of the business of the company can be saved or the return to creditors will be greater if the company continues to trade. Insolvency External administration refers to the administration of the company by an external party. The processes that form part of external administration are receivership, schemes of arrangement, voluntary administration, and liquidation. Liquidation or winding up is the final step in external administration. This is discussed in Chapter 16. |
