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How Do I Know If My Company Is Insolvent?

It is important to recognise the signs of company insolvency so that you can take action immediately and prevent trading whilst insolvent.

If you are wondering how to know if your company is insolvent or likely to become insolvent, there are some common warning signs to look out for.

1. Poor cash flow

If your business is spending more money than it is making it, then that is poor cash flow. If this poor cash flow is maintained for a long period of time, it could mean that your business will become insolvent.

2. Not updating bookkeeping records

Another sign to know if your company is insolvent is poor bookkeeping. We often see this is the first sign of a company experiencing financial difficulties.

Having incomplete records will make it very difficult to determine if your company is solvent. The Corporations Act places a positive duty on company directors to maintain proper books and records.

This falls under the Corporations Act which stipulates that as a director, his or her duty is to “keep books and records”.

It will also give a reason for a Liquidator to believe that your company was insolvent, beginning from the time the books were not maintained.

3. Unpaid or overdue employee entitlements

Companies that are having trouble paying their bills and fees often turn to employee benefits to improve short-term cash flow, such as superannuation.

This is because superannuation is only paid quarterly so it may take a while for anyone to notice late or missed payments.

However, doing so may cause more future problems for the company directors. Directors who do not remit superannuation will become personally liable.

4. Suppliers demand cash on delivery

If your suppliers have started to implement cash on delivery (COD), then this is another sign that your company is insolvent or heading to insolvency.

This is because your suppliers have identified your inability to pay your account on time.

If you have identified any of these insolvency warning signs, then you need to act immediately. Speak to a professional who can advise you on your options, such as Insolvency Services Australia.

We will give you a FREE initial consultation when you call our toll-free, 24/7 hotline on 1800 003 883.

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