Learning Centre

The difficulties company directors face when confronted with the possibility of insolvency can be made easier with advice from the right business restructuring and insolvency firm. Often directors feel that they have no choice other than to wind up their company when they might actually have other options. Directors who fail to take appropriate action or simply leave it too late to deal with financial difficulties as they arise might find that their company is forced into liquidation by its creditors. By seeking advice from an experienced and qualified insolvency professional at an early stage, directors may be able to explore options such as appointing a voluntary administrator which might enable the company to continue and the directors to eventually regain control of the business. If that isn’t possible, the right insolvency practitioner can help make it easier for directors to navigate the insolvency process. Here are some things to consider when choosing an insolvency firm - approaches do vary and bigger certainly doesn’t necessarily mean better!

One of the biggest challenges any company can face is the prospect of insolvency. Often companies keep plugging away, getting further and further into debt hoping business will pick up and their finances will improve. However, the longer directors wait to take action to correct their circumstances, the more likely it becomes that an adverse outcome will eventuate. The good news is there is a way to increase the odds of a business remaining operational despite experiencing financial stress: Voluntary Administration. A voluntary administration provides an opportunity for a business to continue while offering a way for directors to pay down outstanding debt in a more manageable fashion. If creditors accept the directors’ offer, a company can continue to trade under the control of the directors. A voluntary administration has the potential to increase the chances of a company overcoming a temporary bump in the road. Here we explain how voluntary administration occurs and some advantages of pursuing this option.

When a company is experiencing financial difficulties, directors often find themselves putting out “spot fires” just trying to stay afloat. Under pressure from creditors, many directors end up making unwise decisions such as extending credit lines, borrowing excessively, drip-feeding funds to creditors just to gain some extra time or simply making promises they know they can’t keep. In desperation, directors may sell their personal assets or borrow from family and friends to raise funds for their company. While possibly gaining some additional time, it is also likely that the above steps may simply serve to delay the inevitable and the company may still find itself in trouble If it is unable to pay its debts as and when due. If that occurs, a creditor or creditors (and especially, the ATO) may well lose patience and take action to wind up the company in court in order to try to recover their unpaid debt. Unfortunately, many directors leave it too late to seek financial advice from an experienced and qualified professional. This often leaves few alternatives for the company other than liquidation. It really is at the first sign of any financial difficulties that it is critical to seek specialist insolvency advice about the options that may be available. It is at that stage when there is the greatest likelihood of an outcome in the interests of all stakeholders. Directors are generally unfamiliar with insolvency procedures and it can be difficult for directors to know where to turn when faced with financial trouble. They might decide to speak to their existing accountant who may be able to assist however, if the company’s existing accountant is unable to help, seeking advice from a qualified insolvency practitioner is likely to be the best approach. If directors know what to discuss with their accountant, it can assist the accountant in providing them with a properly informed opinion and potentially have the benefit of eliminating the need to speak to an insolvency practitioner if appropriate strategies can be implemented at an early stage.