Worried about your business becoming insolvent? Call JLA today for practical no nonsense insolvency advice.
The corporations act contains specific information in regards to how companies and directors need to behave when it comes to solvency. The act also provides considerable detail in terms of how you are expected to report on insolvency and the steps that need to be taken when you believe that your company has become insolvent or is likely to become insolvent in the near future.
To the average business person, insolvency legislation can be quite daunting and many directors are unsure of what to do when they suspect that their company is potentially insolvent. Here are a few things that directors should keep in mind.
- As a director you have a duty of care to your shareholders and also your creditors. If you trade while your company is insolvent then you can be held personally liable for debts that have been incurred.
- It is not just directors who can be held liable, managers and associates of directors can also be held responsible if they trade while insolvent.
- If the company is at risk of becoming insolvent then you have a duty to the creditors of the company.
- As a director of a company you have a duty to ensure that your company keeps adequate accounting records and that you are familiar with the financial position of the business.
- If your business does trade while insolvent then your creditors could potentially come after your personal assets.
- There are options available to you prior to losing total control of the situation.
So what will happen if my company becomes insolvent
- There are a number of triggers for insolvency. In a lot of cases the ATO will start the process with a directors penalty notice for unpaid tax or super. In other circumstances your creditors might kick off the process.
- You and the other directors of your business will have control of that business taken away from them.
- If an administrator/liquidator is appointed then they will make an assessment of whether the business can continue to trade and whether cost cutting measures can be put in place.
- The liquidator will look to sell any assets that the business has in order to pay the creditors and employees of the business.
- The administrator will coordinate meetings of the creditors of the company.
- Creditors will be ranked according to any security that has been given.
- The liquidator will charge fees in relation to the time that is worked by the staff of the liquidator.
How do you prevent the company from becoming insolvent
As a director you should be keeping a very close eye on the assets and liabilities of the business. You should understand where the cash is coming from and where it is going. If you suspect that there may be issues then you need to consult a business like JLA to get some advice in terms of what your options are and how you can minimise the damage.
Jamieson Louttit and Associates are expert insolvency advisors who provide advice to directors and officers of companies where insolvency may be looming on the horizon. We will let you know what your options are. Call us today on 02 9231 0505 for a free initial discussion in terms of how we can help you.