A charity is insolvent when it is unable to pay all of its debts when they are due.
A charity may be insolvent if it:
- has overdue taxes
- is behind on loan repayments
- is operating at a loss, or
- is unable to pay for goods it has received.
Generally speaking, charities that are insolvent must appoint a liquidator or administrator to manage the charity. In some cases, if a charity is insolvent it must be wound up. If a charity is insolvent, and has not acted to appoint an administrator or liquidator, a court may order that the charity be wound up.
You will need professional advice if you think your charity needs to wind up because it does not have enough money to pay its debts.
Insolvency and 'disqualified persons'
A disqualified person is a Responsible Person, such as a board or committee member, that may not be eligible to serve on the board of a charity. Reasons for disqualification include being convicted of certain offences, banruptcy or personal insolvency agreements, or disqualification by a court or regulator.
Under Governance Standard 4, charities must be satisfied that their Responsible Persons are not disqualified from managing a corporation. The ACNC has the power to suspend or remove a Responsible Person (such as a board or committee member, or trustee) from a charity, which is recorded on the Disqualified Persons Register.