STATUTORY REMEDIES AVAILABLE TO BUSINESSES IN THE EVENT OF FINANCIAL DIFFICULTIES ARISING
STATUTORY REMEDIES AVAILABLE TO INDIVIDUALS OPERATING THE BUSINESS ARE BY VIRTUE OF THE PROVISIONS OF THE BANKRUPTCY ACT
An individual who operates a business which finds itself in financial difficulty can make arrangements under Part 10 of the Bankruptcy Act.
Put simply, the individual simply appoints a Bankruptcy trustee to convene a meeting of creditors and in the process. The Trustee takes control of the business, with the power to carry on the business and manage the business’s property as agent. The trustee may perform any function and exercise any power that the proprietor could have performed or exercise prior to the Administrator’s appointment.
Whilst the Trustee is in control, creditors are prevented from commencing or continuing proceedings against the company without a court order and the court will generally refuse to grant such an order if it is satisfied that it is in the best interests of the creditors for the proposed arrangement to continue.
The Trustee must investigate the business’s, property affairs and financial circumstances and form an opinion as to whether an arrangement with the creditors would be in their best interests or whether the formal proposal should end. This investigation and review will form the basis of the Trustee’s report to creditors.
At the meeting, the trustee puts a proposal to the creditors; it may be for a moratorium, a write off a part of the debts, or payment over time or a combination.
The proposal is put to the vote and if passed by the required majority then the business owner no longer owes the original debt or debts but has instead an obligation to fulfil the terms of the arrangement approved by the meeting.
Debt restructuring is a form of relief which may be just as effective as the introduction of fresh capital to the business.