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From cash flow issues to losing clients, to being unable to pay wages: Business owners are being urged not to ignore early insolvency signs as they could find themselves liable down the track.
Business recovery and insolvency firm Jirsch Sutherland has sounded the alarm, noting 31 December as the date when the COVID-19-induced moratorium on insolvent trading ends.
The temporary increase in the statutory demand threshold, the first tranche of JobKeeper 2.0 and, for some states, the ending of the commercial eviction moratorium are also all coming to a close, which could place further strain on businesses that are already feeling the heat.
It means that it’s “crunch time” for businesses, according to Jirsch Sutherland national managing partner Bradd Morelli.
He said “it’s vital that businesses don’t ignore the warning signs of insolvency – otherwise they could miss the window to take corrective action.”
“Not only that, but directors could also retrospectively be held personally liable for insolvent trading – from when the temporary COVID-19 Safe Harbour changes to the Corporations Act came into play on March 25 this year.”
Here are 12 warning signs a business’ solvency could be going south:
- Poor or no cash flow
- Can’t pay your bills
- Can’t pay staff wages or superannuation
- Poor quality books or records
- Net asset / (liability) position
- Losing clients
- Securing special payment arrangements with creditors
- Disputes between business owners and directors
- High staff turnover and lower competence
- Substantial bad debt write-offs
- Physical deterioration or poor appearance of your business premises
- Inability to access finance
Mr Morelli said, “It’s crucial that business owners and directors understand that while it might not be their fault that their business is in trouble, it is their responsibility.”
For businesses that might find themselves in solvency trouble, it’s not all bad news.
ASIC does encourage directors to seek advice early from a suitably qualified and independent adviser about their company’s financial affairs and the options available to manage COVID-19 disruptions.
“Early intervention could mean the difference between turning a business around or going into liquidation,” Mr Morelli added
By recognising the signs your business is in trouble and acting on them early, the managing partner said business owners and directors can give their businesses “the best chance of survival or to wind it up with minimal losses and achieve the best possible outcome”.
“Working with a business recovery/insolvency specialist also means that if you have been trading while insolvent, the matter will be handled in a controlled manner, mitigate risk and prevent against subsequent action once the insolvent trading moratorium ends.”
Here are six steps business owners should take if any of the above warning signs are identified:
ABOUT THE AUTHOR
Grace Ormsby
Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.
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