Bankruptcy and Insolvency Lecture Notes

Flashcards created from lecture notes on bankruptcy and insolvency, covering key concepts, definitions, and processes.

What does bankruptcy apply to?

Bankruptcy applies to individuals.

What are some reasons for bankruptcy?

Poor investments, overuse of credit cards, poor business management, and guaranteeing debts.

What is the Bankruptcy Act 1966?

It is a Commonwealth law that governs bankruptcy in Australia.

What is voluntary bankruptcy?

It is when a debtor petitions to declare themselves bankrupt.

What is involuntary bankruptcy?

It occurs when creditors petition for the debtor to be declared bankrupt, typically if the debtor owes $2000 or more.

Define an act of bankruptcy according to the Bankruptcy Act 1966.

An act includes informing a creditor of inability to pay a debt, absconding, failing to pay amounts under a court order, or failing to submit a debtor's petition.

What are the impacts of bankruptcy on creditors?

Bankruptcy converts debts into rights, prevents further action by creditors, and results in the loss of the bankrupt's property.

What is the discharge period for bankruptcy?

Discharge occurs automatically after 3 years without objections.

What is insolvency as per the Corporations Act, 2001?

Insolvency means the company is unable to pay its debts as they become due.

What are the four factors considered to determine insolvency?

Debts due, liquidity of assets, expected net cash flow, and arrangements with bankers/shareholders.

What are the types of external administration for insolvent companies?

Receivership, voluntary administration, and liquidation.

What is the purpose of voluntary administration?

To increase the possibility of continuing the company's business successfully.

What is the role of a Liquidator?

To control the company’s affairs, realise assets, determine debts payable, distribute proceeds, and deregister the company.

What is the basic order of repayment of creditors in liquidation?

1. Liquidation costs 2. Secured creditors 3. Employee entitlements 4. Unsecured creditors 5. Shareholders.