How Does Insolvency Work in Australia?


Insolvency is the state of being unable to pay your debts. If you’re insolvent, it means you don’t have enough money to pay your creditors. This can happen to individuals, businesses, and even countries. In Australia, there are different types of insolvency, and each has its own process. In this brief article, we’ll explain what insolvency is and how it works in Australia. We’ll also give you some tips on what to do if you think you might be insolvent.

What is Insolvency?

Insolvency has a few different meanings depending on the situation. For individuals and households, it usually refers to a debt situation where a person can’t repay their debts. In this case, insolvency refers to the inability to pay. For businesses, it means that the company has less cash than debt. In this case, insolvency refers to the inability to pay debts as they come due. For sovereign governments, insolvency refers to the inability to make payments on sovereign debt. In this case, insolvency refers to the inability to pay debts that are due to be repaid to investors.

How does the insolvency process work in Australia?

As mentioned, Individuals, businesses, and even governments can become insolvent. If an individual or household thinks they might be insolvent, they can try a debt management plan or a debt negotiation. These are voluntary programs where a person works with creditors to create a payment plan that fits their situation. If a person is facing extreme financial hardship and can’t repay their debt through these programs, they might be eligible for debt relief. 

Debt relief is a government program that helps people in financial hardship. It stops all collection actions for most types of consumer debt, including credit cards, utilities, personal loans, and rent. Debt relief is only available to people who are Australian citizens or have been in Australia for at least 10 years. 

For businesses, insolvency can happen if they can’t pay their debts when they’re due. It can be a stressful situation, but there are ways that companies can get back on their feet. One way is to get an external administrator to take over running the company. 

Another option is to seek voluntary administration. In this situation, the company’s directors apply to a court for the company to be placed into administration. If a business can’t pay its debts and can’t find a way to keep operating, it might be worth exploring if the company might be liquidated. This is a process where a company’s assets are sold off and creditors are paid as much as possible. Once all of the debts have been paid, the company is dissolved.


Insolvent is another way of saying that a person or business is unable to pay their debts. People and companies can become insolvent for many reasons, but there are several things you can do if you find yourself facing insolvency. For individuals, it may be possible to seek debt relief or make a deal with creditors. For companies, administration may be necessary to resolve outstanding debts. If you think your company may be facing insolvency, then be sure to contact a restructuring firm as soon as possible, so that you can get advice and assistance before it’s too late. 

Heather Jones
Heather Jones
Heather Jones is the Social Good reporter at Businessner, covering online stories about digital activism, climate justice, accessibility, and more. Outside Businessner, Heather is an avid film watcher, bread maker, concert goer, and California enthusiast. You can catch her writing from the comfort of her southern porch with a cup of Earl Grey tea.

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