An insolvent association is one that is unable to pay its debts when due for payment. An insolvent association cannot apply for cancellation or be wound up voluntarily. It will need to make an application to the Supreme Court to be wound up.
If there is a concern that an association may be insolvent, it is recommended that no further debt is incurred until the financial position of the association has been established.
If it is not possible to restructure, refinance or obtain additional funding it may be necessary to appoint a voluntary administrator or contact a liquidator.
Liquidation is the orderly winding up of an organisation’s affairs. It involves realising the organisation’s assets, cessation or sale of operations and distributing the realisation proceeds among its creditors.
Voluntary administration involves an external administrator investigating the organisation’s affairs and providing a recommendation to the creditors.
If the association is unsure where to begin it is recommended to do the following:
- Make a list of all possible creditors and how much is owed to each.
- Arrange to have the association’s accounts audited.
- Contact creditors and see if an agreement can be reached regarding the debt.
- Discuss the situation with a finance professional or a lawyer.
Any association that may be insolvent is encouraged to seek professional advice to determine its rights, obligations and options.