When a company lands in the unfortunate position of being unable to repay its debts that is known as ‘insolvency’. The three most common corporate insolvency procedures are involuntary administration, liquidation and receivership. Regardless of which procedure, insolvency matters are generally underpinned by very complex legal arrangements. Accordingly, it is highly recommended that you hire an insolvency lawyer to help you with every step of the way.
But how do I choose a suitable insolvency lawyer? Here are four recommended questions for you to consider when hiring an insolvency lawyer.
4 Questions to Ask When Hiring an Insolvency Lawyer
1. What is your experience with Insolvency matters?
It is preferable to hire a lawyer who specialises in insolvency law rather than a general practice lawyer. A good starting question is to ask if the lawyer has previously advised on or dealt with insolvency matters. This should deliver an insight into the likely legal outcomes, costs and the commitment that both you and the lawyer will undertake. If possible, it may also be wise to specifically about voluntary administration, liquidation or receivership (whichever applies to your situation) to find out whether the prospective lawyer is well-versed in all or only specific areas of insolvency.
It is important to note that when an individual person or small business becomes insolvent, that is technically called ‘bankruptcy’, to which different rules apply. Bankruptcy is governed under the Bankruptcy Act 1966 (Cth) while insolvency is principally governed under the Corporations Act 2001 (Cth). Therefore, if your current situation is actually one of bankruptcy, you may want to hire a business bankruptcy lawyer. Check out our article about the different questions which you could ask when hiring a business bankruptcy lawyer.
2. How will you help me?
The minimum range of matters which your insolvency lawyer should be able to advise you on, include:
- The differences between the voluntary administration, liquidation and receivership procedures; and
- The implications of insolvency on directors, liquidators, shareholders, employees, investors and creditors.
In some circumstances, you may seek help from your lawyer on drafting a Deed of Company Arrangement (DOCA), which is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with during the voluntary administration process. In other cases, you may seek legal advice on restructuring or any other options in the aftermath of the insolvency procedure.
In all cases, it is recommended that you expressly communicate what sort of professional help you need from the lawyer to determine whether he/she is suitable for your matter.
3. What information do you need from me?
The point behind this question is to gain an idea of what you need to prepare and provide for your lawyer. Generally, information which you may need to provide are those which relate to the value of your company assets, loan documents/contracts, debt repayment records, creditor details, etc. It would also be wise to clarify with your lawyer why they need a particular piece of information. This is because your lawyer should only gather information for the purposes of understanding the nature and risks of your situation. Any irrelevant information which you disclose may not only complicate the matter for your lawyer, but it may also compromise your company’s secrets.
4. What are your costs?
Given that your company is already facing financial trouble, it would be within your financial interests to ask how the lawyer will charge you for his or her legal service.
Billable hours are when the lawyer charges for every hour spent on your matter. Some lawyers may even charge you every six minutes. Therefore, it is important that you get an idea of how much time your lawyer is expected to take. In addition to the time structure, also ask your lawyer of what type of tasks or bases upon which he or she will charge you. This ensures transparency in the lawyer’s billing method.
Flat fee is an one-off, fixed price for the lawyer’s service. While the flat fee structure provides a definite payment figure, it may not always cover all legal costs such as filing or contract negotiations. Therefore, it is important to ask what type of services and tasks will be covered under the flat fee.
Conclusion
Insolvency is dire situation which almost no company ever wants to be in. However, when it does happen, it would be a wise decision to consult with an insolvency lawyer who can advise you on the present risks and opportunities according to your circumstances.
Require an insolvency lawyer? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our lawyer marketplace or any other legal needs.
