When a company begins experiencing financial difficulty, directors need to carefully consider both the company's position and their ongoing responsibilities.
When a company begins experiencing financial difficulty, directors need to carefully consider both the company's position and their ongoing responsibilities.
Cash flow problems do not necessarily mean a company must immediately enter an external administration process. However, worsening financial problems should not be ignored.
Early action can improve the range of options available and reduce uncertainty for directors, creditors and stakeholders.
Book a ConsultationOne warning sign in isolation may not establish insolvency. A combination of persistent problems, however, should prompt directors to closely review the company's financial position.
Directors should ensure they have current and reliable information about the company's finances.
This can include reviewing cash flow forecasts, outstanding creditors, taxation liabilities, employee entitlements, finance commitments and expected revenue.
Understanding the company's actual financial position is essential when considering what action should be taken.
Directors have legal obligations concerning insolvent trading.
Where there are concerns about whether a company can continue paying its debts as and when they become due, directors should obtain appropriate professional advice.
Waiting for a creditor, financier or the ATO to take enforcement action can significantly reduce the options available.
The appropriate approach will depend upon the company's financial position, creditors, assets and prospects.
Financial distress does not always result in liquidation.
Depending on the company's circumstances, available options may include operational restructuring, refinancing, voluntary administration, a Deed of Company Arrangement or other formal and informal restructuring strategies.
One of the most important steps directors can take when a company encounters financial difficulty is to address the problem early.
Understanding the company's position before it reaches a crisis point provides more time to assess possible restructuring and insolvency options.
JLA Insolvency & Advisory provides practical insolvency and restructuring advice to company directors, businesses and professional advisers from our Sydney CBD office.
Contact JLAIf this situation affects you, your business or a company you deal with, confidential advice can help clarify the next step.