If you are involved in a business that is showing signs of trouble, react quickly. This will dramatically increase your business’s chance of survival. You, together with the business’s shareholders or directors, must consider the situation objectively. Should you continue trading, or stop trading and put an action in place?
One thing is certain, your business strategy must be reviewed. Typical warning signs your business is in trouble include:
Your financier is requesting additional security, or that the business be refinanced with another financier.
Your mounting trade creditors are threatening legal action for recovery of debts.
You are unable to pay your business taxes.
Disputed debts are causing a cash flow crisis for your business.
Your business is required to pay a sum of money in response to an adverse finding in a legal action brought against the business.
If the business is deemed insolvent, or unable to pay expenses as they fall due, the directors of the business must take appropriate action to avoid continuing to trade while insolvent. Options available to the business if deemed insolvent may include:
When scope exists to restructure the financial affairs of the business, entering into Voluntary Administration can be a viable alternative to winding up the business. Voluntary Administration also provides for a moratorium on any outstanding debts, except for secured creditors. These measures provide directors with ‘breathing space’ to focus on the most effective means of resolving the financial problems.
Deed of Company Arrangement
A Deed of Company Arrangement allows the implementation of a revised business plan and strategy to return the business to profitable trading. The flexible nature of the proposal (i.e. the form and content of the Deed of Company Arrangement can be composed in any manner the company wishes, subject to approval by creditors) makes this an attractive option for some businesses.
Creditors Voluntary Liquidation
If it is necessary to wind up the business, Creditors Voluntary Liquidation provides a fair and equitable distribution of the business’s assets among its common creditors. This form of liquidation is made voluntarily by the shareholders and takes a minimum of approximately one week to effect the appointment.
A Receiver is usually appointed by a secured creditor or the court. A Receiver can be appointed with or without the director’s/directors’ consent and can either continue to trade on the business or realise some, or all, of the business’s assets to repay the secured creditors.
When business gets personal
The downside of an insolvent business is the effect it can have on you personally. You, and any other stakeholders, may be called upon to meet the liabilities of the business personally. Common examples include, payment for secured debts, and rent when the business has been operated from leased premises.
If you find yourself in this situation, you might need to consider personal insolvency options.
JH Business Services & Taxation
Accounting | Business Advisory | Tax Services
Specialist in small to medium business
& personal tax services
29-31 Lexington Drive
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