An insolvent company is one that is unable to pay its debts when they are due.
Signs that may indicate your company is in financial difficulty include ongoing losses, poor cashflow, unpaid creditors outside usual trading terms and problems obtaining finance.
If your company is insolvent, you must take immediate action.
Do not allow it to incur further debt
If you receive a director penalty notice from the ATO you should immediately seek professional advice. Failure to take appropriate steps within 21 days may result in the Commissioner taking recovery action against you personally for an amount equivalent to the unpaid tax.
ASIC advises directors:
- Unless you can promptly restructure, refinance or obtain equity funding to recapitalise the company, generally, your options are to appoint a voluntary administrator or a liquidator.
- If you suspect your company is in financial difficulty, get professional accounting and legal advice as early as possible, as this increases the likelihood of the company surviving.
- One of the most common reasons for the inability to save a company in financial distress is that professional advice was sought too late.
- Do not have a ‘head in the sand’ attitude, hoping that things will improve – they rarely do.
Mayfields Business Advisers is a specialist insolvency practitioner and corporate paramedic.
Contact Eddie Muscat, registered liquidator, on 03 8618 6878