Corporate insolvency is a situation where a company cannot pay its debts, and the creditors are unable to recover their money. This can be an incredibly difficult time for businesses of all sizes in Australia as financial pressures mount. However, there are options available to help companies through this period and possibly return to profitability.
This article will describe the warning signs your business may be at risk of insolvency and we will list the options and financial assistance available for you from corporate insolvency services.
What is Corporate Insolvency?
If a company can’t pay its debts in full and on time, it’s considered insolvent. The financial model for most businesses is simple, revenue in, expenses and outgoings out. When a company’s expenses start to outweigh its income, debts can build up. Whether it’s unpaid employees, taxes or bills, debts can increase. This is when you need corporate insolvency services to help and guide you.
How Do You Know When Your Business Is at Risk of Insolvency?
There are a number of warning signs indicating your company has financial difficulties and is at risk of becoming insolvent. Some of these indicators include:
- Non-payment of tax debts
If you own a business and find yourself struggling to make ends meet, it can be tempting to prioritise paying staff wages and suppliers over settling tax liabilities. However, this may lead to more trouble in the long run.Non-payment of taxes can result in hefty penalties and interest charges, ultimately increasing your tax liability. If left unchecked, this can spiral out of control and create an unmanageable situation for your business. - Struggling to Dispose of Stock
When your stock isn’t moving, it can lead to serious financial issues for your business. The value of your company’s assets can become impacted by old or obsolete stock, making it difficult to pay off debts and obtain financing for new projects. This situation can also make it challenging to sell your shares on the market for a reasonable price.Working with the right corporate insolvency services can help you navigate the complexities of stock management, financial planning, and debt recovery, allowing you to get back on track with your business goals. - Ongoing Lack of Profit
Are you facing continuing financial losses for the past two years? Don’t wait any longer to seek help. It’s essential you contact corporate insolvency services to review your situation. They can offer advice on improving your business processes and identifying any loss-causing inefficiencies.Your corporate insolvency services may suggest selling any idle or underperforming assets and replacing them with profitable ones.Reducing overhead costs, such as employee expenses, may also be recommended to prevent further losses.
- Legal Notices From Creditors
You know you are facing financial problems when your business starts to receive demands and legal notices from creditors.This is where corporate insolvency services come in. They can help you understand the situation, assess your options, and guide you through the process of responding to these notices.You may need to negotiate a repayment plan or explore alternative solutions like debt restructuring or liquidation, a corporate insolvency expert can provide the support and advice you need to protect your business and secure a better financial future.
- Lack of Sales
If you’re noticing a decline in sales, it can be a cause for concern, but it’s important to understand the underlying reasons behind this drop in revenue.Working with corporate insolvency services can help you identify potential roadblocks and opportunities for growth. Perhaps your business needs an injection of cash or a fresh marketing strategy. Alternatively, diversifying your offerings may help attract new customers.By taking a step back and reviewing your company’s place in the market with a finance professional, you can make informed decisions to turn the situation around.
- Your Invoices Are Not Being Paid
If your business is experiencing financial problems, particularly in a poor overall financial climate, you may be finding it challenging to collect the money owed to you through invoices. This can have a significant impact on your financial forecasting and could lead to serious financial problems if left unmanaged.Corporate insolvency services can work with you to introduce a more efficient system for debt collection. They may suggest solutions such as discounting your invoices to improve cash flow or streamlining your debt collection processes. - Difficulties Getting Funding
Being denied access to credit can be a frustrating and stressful experience. There are alternative methods you can explore to free up cash and keep your business afloat.Seek the guidance of corporate insolvency services who can review your debt repayment terms and possibly revise them to better suit your financial situation. This can help to alleviate the pressure of mounting debt and provide you with more time to pay off your existing loans. - Borrowing From Friends and Family
When your business is struggling, it’s natural to seek outside help, but you, and they, should understand the risks associated with borrowing from loved ones.Without a structured repayment plan in place, your relationship with them could become strained. If your business eventually goes into liquidation, your friends and family will be treated as unsecured creditors with no priority for repayment.
It is important you seek corporate insolvency services from professional financial experts as soon as you realise your business has financial problems. There is a better chance of a financial professional returning you to a successful, profitable business if they are able to address the situation early. If you continue to operate your business when you know there are problems then you may be guilty of trading while insolvent, which is illegal!
What Options Are Available for My Company?
If you realise your business has financial problems, seek advice and guidance from corporate insolvency services as soon as possible. Some options and solutions they may suggest include:
- Liquidation
The aim of liquidation is to identify company assets and sell them to raise funds for creditors. A liquidator is appointed to oversee this process, plus they are tasked to investigate the company and its directors to establish why the company failed. The liquidator will also ensure no offences were committed during the company’s operation.The liquidator is responsible for reporting to creditors and to the Australian Securities and Investments Commission (ASIC). By fulfilling all of these duties, the liquidator can help creditors obtain a fair payout and offer valuable corporate insolvency services. - Receivership
If a company is struggling to pay back a creditor, they may face the possibility of going into receivership. In this scenario, a secured creditor appoints a receiver to take control of the company’s assets and sell them off to repay any outstanding debts.This continues until all business assets have been sold or enough of them have been sold to fully repay the creditor, then the company and its remaining assets will be placed back into the director’s hands. - Voluntary Administration
Voluntary Administration can be a smart decision to save your business. The administrator is responsible for continuing to run the company while investigating its financial affairs and identifying the value of its assets.Following completion of their investigation, they will present three options for creditors to vote on:- liquidation,
- a deed of Company Arrangement (DOCA),
- A documented plan to pay all, or some of the outstanding debt over time
- returning control to the directors
- If the administrator believes the company can continue to trade and settle its debts
- Small Business Restructuring
The process of small business debt restructuring allows for companies to take control and restructure their debt with the guidance of a Small Business Restructuring Practitioner (SBRP).The restructuring practitioner plays a vital role in the process by determining eligibility, reviewing financial affairs, assisting in the development of a restructuring plan, certifying the plan to creditors, and managing disbursements.This formal process is designed to give small businesses the support they need to stay afloat while working towards a successful future. - Restructure and Turnaround
As a business owner, it’s essential to know the break-even point for your business, and yet many entrepreneurs fall short on this aspect. Fortunately, accountants can step in and provide consulting work to help directors increase revenue or reduce general costs and expenses.The accountants can also advise on strategies to reduce fixed overheads and recover amounts from overdue debtors or the sale of other assets.Your corporate insolvency service providers can provide insight into finance options available to provide immediate cash flow. By coaching business owners to “work on, not in” the business, accountants can ensure directors adequately focus on the key drivers of profitability. - Funding Solutions
If your company is facing financial difficulty a corporate insolvency specialist can work with you to assess your company’s financial situation and develop a recovery strategy tailored to your specific circumstances.One of the benefits of working with a specialist is they are likely to have a network of trusted, reliable lenders and funding experts. These lenders can often advance otherwise unavailable funds to clients, providing financial relief. Of course, the ability to borrow and repay a loan will be based on your forecast financial circumstances on completion of the recovery strategy. But this funding can be a vital lifeline, helping to kickstart the recovery process and put your company back on a stable financial footing.
Ready to Take the Next Step? Let Corporate Lifeline Guide You
Are you struggling with financial difficulties for your business? Don’t worry, Corporate Lifeline has got you covered.
As one of the largest and most trusted business advisory firms in the country, we have the experience and expertise to guide you towards success.
We know every company has unique challenges, which is why we provide tailored strategies for your specific situation. Our corporate insolvency services specialists will be with you every step of the way, helping you to make informed decisions about your financials and manage any risks you may face. We understand this can be a tough time for you, but rest assured we’ve already helped hundreds of Australian businesses and we’re ready to help you too.
Contact us today for more information.