If your business is struggling to pay its debts, this is understandably a stressful and uncertain time for you. The first and most important thing to do however, is seek professional legal advice. Stacks is here to help.
All businesses run the risk of failure. You can’t always predict what lies ahead - whether the economic climate will change, impacting poorly on your business’ cash flow and overall profitability or whether an idea will fail to take off the way you expected. That’s the nature of the business world.
But you can take note of the early warning signs. And you should understand the insolvency process, regardless of the size of your business.
It’s the legal obligation of a Director to stay on top of the company’s finances and trading performance, which means keeping up-to-date books and records. If a business continues to trade while it is insolvent (unable to pay its debts), there can be severe consequences. Directors can find themselves personally liable for the business’ debts. The company may be wound up and cease to exist.
If the signs are there, the first step is to seek professional advice so that you can call the shots about how best to handle the situation. Putting procedures in place early could potentially save the business from an unhappy fate.
A Stacks Law Firm commercial lawyer can provide advice and assistance to help you to resolve your business’ financial difficulties in order to avoid insolvent trading. If your business has been declared insolvent, we can provide remedies to assist you. Should your business be affected by another business’ insolvent trading, we can help you recoup what you are owed.
When is a business declared insolvent?
Insolvent trading means not being able to pay debts when they are due. If your business receives a Creditor’s Statutory Demand and fails to have it set aside, or to pay the creditor within 21 days, the company is deemed to be insolvent. Continuing to trade under these circumstances is risky for both the company and its directors. Court action could be taken against you, with the result that the company is wound up and a liquidator appointed to sell off the assets in order to pay the outstanding debts.
Signs that your business may be in financial trouble
- Cash flow problems
- Creditors not being paid on time
- Difficulty selling stock
- Dishonoured cheques
- Problems paying taxes on time (eg. GST)
- Concerns being raised by your bookkeeper or accountant
- Being unable to get further finance to fund operation
What options are available to avoid insolvent trading?
- You may be able to restructure the business such as closing down an unprofitable department
- You might be able to negotiate with creditors or the Australian Taxation Office about the time frame for paying outstanding debts or taxes
What options are available if your business is declared insolvent?
- Voluntary Administration - You may decide to enter Voluntary Administration, meaning that an ‘Administrator’ is appointed to take charge of the company’s affairs in order to try to find a way to satisfy the creditors, while the company carries on trading
- Liquidation - This is where a Liquidator is appointed to determine the value of the business’ assets and sell them in order to cover all of the debts. After this has taken place the business will cease to exist
- Receivership - a ‘Receiver’ takes control of particular assets. A receiver may be appointed by a secured creditor such as a bank to seek remedies to recoup the debts they are owed. The receiver is generally only seeking to ensure that the creditor they have been appointed by, gets paid
Need some advice about insolvent trading? Call us today