There are a number of warning signs that indicate that a company may be insolvent.

What are the indicators of Insolvency?

  • statutory debts being settled late
  • a pattern of trade creditors being paid outside of terms, or offering part-settlement
  • unpaid employee superannuation
  • non payment of insurance premiums
  • poor collection procedures, poor cash flow management, debt factoring
  • creditors taking legal action, loss of suppliers
  • erosion of profit margin
  • undercapitalisation, high gearing
  • overstating the value of debtors and / or stock; understating liabilities
  • taking on new business to fund existing work in progress
  • incomplete management information and / or badly kept accounting records

Director’s Responsibilities

What To Do If Insolvency Is Suspected

If insolvency is suspected, it is very important that a company arranges to have cash flows completed to determine the liquidity of the business. If the problems appear to be temporary, solutions such as capital injection may be appropriate. However if the problems appear to be long term, the Director/s should consider appointing a Liquidator or Voluntary Administrator.

Voluntary Administration

This is a useful tool to assist the rehabilitation and reconstruction of a business. Voluntary Administration provides immediate benefit, in that it prevents the winding up of the company by creditors, and provides time to develop a recovery plan for the business. Under this situation, the Administrators assume full responsibility for the operations of the business. They also investigate the books and records, contracts and other commercial considerations. This period of operation and investigation enables them to determine whether the best possible outcome would be to continue trading in order to find a buyer for the business as a going concern, or to liquidate the assets.

Act Now

If your business is in financial difficulty, you need to act quickly. If Directors continue to trade while insolvent, they are exposed to liability for civil and criminal penalties.

It is essential to establish whether a potentially insolvent business can develop the cash flow and other conditions that will support future profitable trade. Acknowledging problems quickly is a positive step, because it creates additional potential for expert solutions like restructure and refinance to save not only the business itself, but the futures of key people associated with it. Contact de Vries Tayeh for experienced, professional advice on securing the best possible outcome for the particular circumstances. The potential to avoid business failure or mitigate its effects is increased, the earlier advice is sought. We offer years of specialised reconstruction and insolvency experience, and look forward to the challenge and responsibility of putting those skills in your service.