Insolvency & Bankruptcy glossary
Insolvency law in Australia covers corporate external administration under the Corporations Act 2001 (Cth) and personal bankruptcy under the Bankruptcy Act 1966 (Cth). This glossary covers 40 commonly used terms.
This is a glossary of 40 key terms used in Australian insolvency and bankruptcy practice. Each entry has a plain-English definition and, where relevant, a citation to the Corporations Act or Bankruptcy Act.
Definitions
Administrator
A registered liquidator appointed to a company under Part 5.3A to take control and recommend the company's future.
AFSA
The Australian Financial Security Authority — the regulator of personal insolvency and administrator of bankruptcies without trustees.
Antecedent transaction
A transaction entered into before an insolvency that may be voidable — such as an unfair preference or uncommercial transaction.
ASIC
The Australian Securities and Investments Commission — the corporate regulator that oversees registered liquidators and enforces the Corporations Act.
Bankruptcy
The legal status of an individual who cannot pay their debts as they fall due, whose property vests in a trustee for distribution to creditors.
Bankruptcy notice
A formal demand served on a debtor based on a judgment debt, failure to comply with which is an act of bankruptcy.
Committee of inspection
A committee of creditors established to advise and monitor an external administrator.
Creditor's petition
A petition filed with the Federal Court or Federal Circuit and Family Court by a creditor seeking a sequestration order against a debtor.
Debt agreement
A binding agreement under Part IX of the Bankruptcy Act between a debtor and their creditors as an alternative to bankruptcy.
Deed of company arrangement (DOCA)
A binding arrangement between a company and its creditors to satisfy debts on specified terms, approved at a watershed meeting during voluntary administration.
Director penalty notice (DPN)
A notice issued by the ATO making a director personally liable for certain company tax debts such as PAYG and SGC.
Discharge
The release of a bankrupt from most pre-bankruptcy debts, typically three years and one day after filing.
Dividend
A distribution paid to creditors by a liquidator or trustee out of the realised assets of the insolvent estate.
Examination
A public or private examination of a person about a company's examinable affairs or a bankrupt's financial affairs.
External administration
A collective term for voluntary administration, liquidation, receivership, and schemes of arrangement under which a company's affairs are handled by a third party.
Garnishee order
An order directing a third party who owes money to the judgment debtor to pay the funds to the judgment creditor instead.
Insolvency
The state of being unable to pay debts as and when they become due and payable. A key threshold for external administration.
Insolvent trading
A director's breach of duty under section 588G of the Corporations Act by permitting a company to incur debts when it is insolvent.
Liquidation
The winding up of a company — realising assets, paying creditors, and distributing any surplus to shareholders.
Liquidator
A registered liquidator appointed to wind up a company, with statutory powers to realise assets and distribute proceeds to creditors.
Netting off
The set-off of mutual debts and credits between an insolvent party and a counterparty, leaving a single net amount payable.
Official Trustee
The statutory trustee within AFSA who administers bankrupt estates where no registered trustee has been appointed.
Personal insolvency agreement (PIA)
A binding agreement under Part X of the Bankruptcy Act between a debtor and creditors as an alternative to bankruptcy.
Phoenix activity
The deliberate transfer of assets from a failing company to a new entity to avoid paying creditors, now subject to specific anti-phoenixing provisions.
Priority creditor
A creditor whose claim ranks ahead of other unsecured creditors in the statutory priority waterfall, most notably employee entitlements.
Proof of debt
A formal claim lodged with a liquidator or trustee setting out the amount and basis of a creditor's debt.
Receivership
The appointment of a receiver, typically by a secured creditor, to take control of charged assets and apply the proceeds to the secured debt.
Restructuring (small business)
A simplified external administration process under Part 5.3B for eligible small companies to restructure debts while directors remain in control.
Safe harbour
A statutory defence to insolvent trading for directors who develop a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation.
Secured creditor
A creditor who holds security over the debtor's property and is entitled to realise that security in satisfaction of their debt.
Sequestration order
A court order making a person bankrupt on a creditor's petition. The date of the order is the date of bankruptcy.
Statement of affairs
A document disclosing a debtor's or company's assets, liabilities, and financial position, required at the outset of external administration or bankruptcy.
Statutory demand
A formal written demand for a debt of at least the statutory minimum served on a company, failure to comply with which creates a presumption of insolvency.
Trustee in bankruptcy
A registered or official trustee who administers a bankrupt estate, realises the bankrupt's divisible property, and distributes to creditors.
Uncommercial transaction
A transaction that a reasonable person in the company's circumstances would not have entered into, potentially voidable against the liquidator.
Unfair preference
A payment or transaction that gives a creditor more than they would receive in a winding up, which may be recovered by the liquidator.
Voidable transaction
A transaction that a liquidator may seek to have set aside or reversed under Part 5.7B of the Corporations Act.
Voluntary administration
A short-term procedure in which an administrator takes control of a company to investigate its affairs and recommend a DOCA, return to directors, or liquidation.
Watershed meeting
The second meeting of creditors in a voluntary administration at which creditors vote on the company's future.
Winding up in insolvency
Court-ordered liquidation of a company on the ground that it is unable to pay its debts.
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This glossary is a general reference for practitioners — not legal advice. Always verify against the current Corporations Act and Bankruptcy Act.
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