We all are aware of the term insolvency. To throw some more light we can state that it is the state where a company is unable to pay its debts. Accordingly, a company can be deemed as insolvent for the purpose of section 588G of the Corporation Act, if it is not able to pay its incurred debts.
Section 588G of the Corporation Act deals with the obligation of director of its company's insolvency. The section 588G applies where:
- A person is the director of the company to which the debts has inflicted.
- The company is insolvent at that time or become insolvent due to that inflicted debts.
- There are reasonable grounds for suspecting that the company is insolvent or may become insolvent, whichever case may be.
The insolvency service
The insolvency service is the agency of executives' deals in the following functions:
- They act as a trustee or liquidator when no insolvency practitioner is appointed for a company.
- Investigate the affairs of companies and partnership resulting in bankruptcy and seek through the state when it can be solvent.
- They handle the bankruptcy restrictions orders and undertakings.
- When an employer is unable or not willing to pay its employees, they evaluate and pay statutory needs like redundancy payments for them.
- They advise BERR ministers and other government agencies on insolvency, redundancy and such issues.
- They conduct a confidential investigation into companies when the matter turns into public interest.
In a nut shell, the insolvency service acts as an investigating agents who probe into the causes and resolve the insolvency. They seek every prospect from where they can dissolve the estates and property to pay the debts. Moreover they take charges of the transactions and further dealing of the company from the time it become insolvent.
The state of insolvency involves few things that must be taken into account-
- Debts to be taken into consideration- Assessment of the current debts and the debts prone to incur in the future has to be performed. Moreover its predicaments depend on the liabilities it incurs.
- Period when the debts are due- It entirely depends upon the court's consideration on the specific circumstances. If necessary, court may extend the term of the company more than it is legally entitled. And the entire debt will not be expected to dissolve at the stipulated date if the relevant amount is dealt with a long standing arrangement.
- Assets that can be taken into consideration- Company's available asset and property can be considered for the procurement of money by mortgage or pledge. The dissolving of the assets will further determine the chances of a company to become solvent.
The insolvency practitioner starts employing their services where the company is proclaimed to be insolvent. They play the vital role to navigate a company from its disastrous state.
