Knowing how to spot the signs of corporate insolvency and receiving the correct professional advice is critical. It could very well be the ‘make or break’ of your business or company.
In order to prevent insolvent trading and limit the number of Australian company liquidations, Insolvency Services Australia (ISA) have outlined the typical situations experienced by companies when they have become insolvent or are likely to become insolvent.
- Poor Cash Flow – If your company constantly experiences poor cash flow, your corporate solvency may be at risk. It is critical to identify the underlying issue and to make an assessment as to whether the company is profitable or not.
- Unpaid or overdue taxes – If you are a repeated offender of failing to pay taxes on time, this is a very common indicator of corporate insolvency. By not rectifying this issue, not only may your company become insolvent, but as the company director you may automatically become personally liable for the debt until it is paid in full.
- Unpaid or overdue employee entitlements – This is also a very common indicator of corporate insolvency and suggests either an absence of cash flow or poor management.
- Suppliers stop supplying or demand COD – If any suppliers have put a stop on supply or start to demand ‘cash on delivery’, they may have recognised your corporate insolvency before you have. This may be a result of a poor payment history, the supplier’s concerns for your solvency or your general credit-worthiness.
- Inadequate company Books & Records – Companies struggling to pay their debts on time also usually fail to keep proper company records. The Corporations Act places a positive obligation on company directors to keep proper books and records to prevent corporate insolvency.
If you are concerned about the solvency of your company, it is important to act fast to prevent liquidation and forced closure. By acting quickly you may reward your company with the opportunity to restructure and continue trading by entering into Voluntary Administration.
Don’t ignore the signs of corporate insolvency and continue to trade whilst your company is insolvent – doing so could have serious implications. Call ISA’s 24/7 hotline today to complete a solvency analysis and receive professional and impartial corporate insolvency advice. Contact 1800 003 883.