In many ways the system to protect creditor of insolvent companies is similar to that used to protect creditors of bankrupt individuals.
Companies, however, are not made bankrupt in the same way as people. Instead, they may:
- enter into a deed of arrangement with their creditors;
- go into receivership;
- or be wound up (liquidated) - voluntarily or forcibly.
These different systems are examined briefly below. (They are covered in Chapter 5 of the Corporations Act, which deals with all the insolvency arrangements under the heading 'External Administration'.)
There are extremely complex rules in the Corporations Act relating to any form of external management, either by administration, deed of arrangement, receivership or liquidation. Each form has its own provisions that are set out in detail in the legislation. It is not important for you to be familiar with all the details. If you are involved with a company that is in, or likely to go into, external administration, you will need legal advice and your lawyer will explain your responsibilities. This section provides only a brief introduction to the types of external management that are available and the consequences for the company and its people when they are introduced.
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