Corporate Insolvency Lawyers in Melbourne

What this practice area covers

Our corporate insolvency practice acts for directors of financially distressed companies, shareholders facing the loss of equity, secured creditors enforcing their position, unsecured creditors pursuing recovery, incoming control parties acquiring distressed assets, and counterparties defending unfair preference and uncommercial transaction claims. We do not act as insolvency practitioners and we do not take liquidator appointments. We act for the parties on either side of those appointments.

The work runs across the full life of a corporate insolvency. Pre-appointment advice on solvency, safe harbour, and the choice between voluntary administration, small business restructuring, and creditors' voluntary liquidation. Director duty advice during the distress period, including on shadow director risk. Defence of insolvent trading claims and DPN exposure. Liquidator-side and counterparty-side work on voidable transactions. Recovery work for secured creditors and trade creditors. Acquisition work for parties buying distressed assets from administrators or liquidators.

We coordinate closely with commercial litigation for disputes that arise out of or into insolvency, with urgent injunction work where freezing orders or appointment of receivers is in play, and with director duties advice across the distress lifecycle. We work alongside insolvency practitioners, turnaround advisers, and forensic accountants, with the lawyer-client privilege boundary kept clearly drawn.

The legal framework for corporate insolvency in Australia

The starting point is the solvency test in section 95A of the Corporations Act 2001 (Cth). A company is solvent if it is able to pay all its debts as and when they become due and payable. A company that is not solvent is insolvent. The test is a cash flow test in form, but the cases recognise that the balance sheet position, expected receipts, and available finance are all relevant to the assessment. The solvency assessment is the foundation of almost every insolvency question, including director liability, voidable transaction analysis, and the choice of insolvency pathway.

Directors' duties under sections 180 to 184 of the Corporations Act continue to operate through financial distress, and the duty to act in the best interests of the company shifts in emphasis where insolvency is in prospect. The High Court in Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1 confirmed that directors must take account of the interests of creditors in discharging their duty to the company. The duty to creditors is now a settled feature of Australian directors' duties jurisprudence, and is the conceptual base for the insolvent trading provisions in section 588G.

Section 588G prohibits a director from allowing the company to incur a debt while it is insolvent, or where there are reasonable grounds for suspecting that it is insolvent or would become insolvent by incurring the debt. ASIC v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 remains a leading authority on the operation of section 588G. Mandie J found the directors of Water Wheel Mills had contravened the civil penalty provision, applying the indicators of insolvency that have been cited in many subsequent decisions. The case is also notable for confirming that non-executive directors are not insulated from section 588G liability by their non-operating role.

Hall v Poolman [2007] NSWSC 1330 is a further reference point on the application of section 588G in matters where directors face acute pressure during a deteriorating financial position. The case arose out of the collapse of the Reynolds Wines group. The reasoning has been cited as illustrating both the seriousness of the liability and the limited scope for relief under section 1317S where the directors have acted honestly and the Court considers it fair to grant relief.

The safe harbour regime in section 588GA, introduced in 2017, protects directors from insolvent trading liability where they develop or implement a course of action reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or a liquidator. Section 588GAAB provides a parallel safe harbour for companies under the small business restructuring process in Part 5.3B. Safe harbour is only available where employee entitlements are being paid as they fall due and tax reporting obligations are being met. The protection lapses if those preconditions are breached, and the burden of establishing safe harbour rests on the director.

Voidable transactions are governed by sections 588FA to 588FE of the Corporations Act. The main heads are unfair preferences under section 588FA, uncommercial transactions under section 588FB, and unreasonable director-related transactions under section 588FDA. Liquidators routinely pursue these claims in the months after appointment. Counterparties have the running account defence and the good faith defence, both of which are heavily contested in practice. The relation-back day is set under sections 91 and 588FE, and the available recovery period depends on the type of transaction and the relationship between the parties.

Director Penalty Notices issued under the Taxation Administration Act 1953 (Cth), Schedule 1, impose personal liability on directors for unpaid PAYG withholding, GST, and superannuation guarantee charge. The 21 day standard DPN allows the director to escape liability by paying the debt, appointing an administrator, or beginning to wind up the company. The lockdown DPN, issued where the underlying liability has not been reported within the prescribed period, removes those options and crystallises personal liability immediately. DPN exposure should be addressed proactively, not after the notice has issued.

Insolvency pathways: choosing the right process

Voluntary administration under Part 5.3A of the Corporations Act is the default pathway for distressed companies where a restructure or going-concern sale is possible. The moratorium on creditor enforcement runs from appointment, and the administrator convenes the second meeting of creditors to consider a Deed of Company Arrangement, liquidation, or return of the company to the directors. Voluntary administration is rarely the right answer where there is no business of value to preserve, and the cost of the process is paid out of the asset pool.

Small business restructuring under Part 5.3B is available to incorporated entities with liabilities under the prescribed threshold. The process is run by a small business restructuring practitioner, the directors remain in control during the restructuring period, and the creditors vote on a restructuring plan. The regime suits genuinely smaller distressed businesses where the cost of voluntary administration is prohibitive. It does not suit larger or more complex matters.

Creditors' voluntary liquidation is the appropriate pathway where there is no going-concern value to preserve and the directors and shareholders have accepted that the company cannot continue to trade. The liquidator realises assets, investigates the affairs of the company, pursues voidable transaction recoveries, and distributes the available pool to creditors in the statutory priority order set by the Insolvency Practice Schedule (Corporations) in Schedule 2 to the Act.

Court-appointed liquidation and the appointment of receivers and managers are also available, and are commonly used where there are disputes about the conduct of directors, where the appointment of a privately appointed liquidator is contested, or where a secured creditor enforces its security. The choice between pathways is rarely neutral, and the cost, recovery profile, and director exposure differ materially between them.

How we work on corporate insolvency matters

Pre-appointment work is where the most leverage sits. We work with directors on the solvency assessment, the safe harbour analysis, and the pathway decision in the weeks before any formal appointment. Where safe harbour is available and the company has a realistic restructuring plan, the work is in documenting the course of action, ensuring employee entitlements and tax reporting are current, and protecting the director's position if the restructure ultimately fails. Where safe harbour is not available, the focus moves to choosing the right insolvency pathway and managing the controlled wind-down.

For directors defending insolvent trading claims, the work centres on the indicators of insolvency at the time the debts were incurred, the evidence available to the director at that time, and the defences in section 588H. The reasonable grounds defence and the reliance defence are heavily fact-dependent, and the contemporaneous documentary record is usually decisive.

For counterparties defending unfair preference and uncommercial transaction claims, the running account defence under section 588FA(3) and the good faith defence under section 588FG are the two principal lines. The work is in marshalling the trading history, the parties' knowledge of the company's financial position, and the commercial setting of the transactions.

For secured creditors enforcing their position, the work is in the validity and priority of the security, the appointment mechanics, and the coordination with administrators or liquidators where parallel processes are running. For incoming control parties acquiring distressed assets, the focus is on the asset acquisition structure, the assumption of liabilities, and the protection of the purchaser against subsequent voidable transaction claims.