What is the difference between Bankruptcy and Liquidation?

When funds run out, you need to know which legal framework applies.

Bankruptcy (Individuals)

Governed by the Bankruptcy Act 1966 (Cth).

• Who: Individuals (including Sole Traders).
• Effect: A Trustee is appointed to sell your assets (e.g., house, shares) to pay creditors.
• Duration: Normally 3 years. After discharge, you are released from most debts.
• Restrictions: You cannot be a company director while bankrupt.

Liquidation (Companies)

Governed by the Corporations Act 2001 (Cth).

• Who: Pty Ltd Companies.
• Effect: A Liquidator is appointed to sell company assets and distribute funds. The company is then deregistered (ceases to exist).
• Director Risk: Liquidators investigate directors for “Insolvent Trading.” If found guilty, you could be personally liable for company debts.

Voluntary Administration

A third option for companies. An Administrator is appointed to try and save the company (e.g., through a Deed of Company Arrangement) rather than kill it.

Related Topics

• Statutory Demands
• Directors Duties
• Debt Practice Area

Expert Insolvency Advice

Bell & Senior advises creditors pursuing debts and directors facing insolvency.

Financial trouble? Contact us for confidential advice. Call (07) 5532 8777.