What are compensation proceedings in insolvency?

Compensation proceedings are a legal process that considers whether directors should compensate creditors for losses they incurred while a company engaged in insolvent trading. Compensation proceedings can be initiated by ASIC, liquidators or creditors.

Compensation orders are different to civil penalties, and directors may be ordered to pay both. There is no legal limit on how much compensation directors may be ordered to pay. Failure to pay may result in bankruptcy.