Require a hand in a financial crisis?
If you are involved in a business that is showing signs of trouble, act quickly......
Heed the warning signs
If you are involved in a business that is showing signs of trouble, act quickly. This will dramatically increase your business’s chance of survival. You, together with any other owners of the business, must consider the situation objectively. Should you continue trading or stop trading and put an action plan in to place?
One thing is certain, your business strategy must be reviewed.
Typical warning signs your business is in trouble include:
- your financier is requesting additional security or that the business be refinanced with another financier
- your mounting trade creditors are threatening legal action for recovery of debts
- you are unable to pay your business taxes
- disputed debts are causing a cash flow crisis
- your business is required to pay a sum of money in response to an adverse finding in a legal action brought against the business.
Where should you turn
Seek advice from any CPA. They will be able to assess if your business requires the assistance of a specialist. CPAs who specialise in insolvency and reconstruction can advise on how to restructure your business, how to change your business strategy or, if more appropriate, on the range of insolvency options available to you. Your objective is to explore all the options to help you save your business, if commercially and practically possible.
The sooner you choose to act, the more options you will have available to you. These might include implementing budgeting and planning processes, refinancing, ceasing unprofitable lines of business, focusing on core activities, reviewing staff requirements and even negotiating reduced creditor payments and repayment plans.
Corporate insolvency options
If the business is deemed insolvent, or unable to pay expenses as they fall due, any directors of a business must take appropriate action to avoid continuing to trade whilst insolvent. Options available to the business if deemed insolvent may include:
Voluntary Administration (VA)
When scope exists to restructure the financial affairs of the business, entering into VA can be a viable alternative to winding up the business. VA also provides for a moratorium on any outstanding debts, except for secured creditors. These measures provide directors with ‘breathing space’ to focus on the most effective means of resolving the financial problems.
Deed of Company Arrangement (DCA)
A DCA allows the implementation of a revised business plan and strategy to return the business to profitable trading and is agreed to by the creditors. The flexible nature of the proposal (i.e. the form and content of the DCA can be composed in any manner the company wishes, subject to approval by creditors) makes this an attractive option for some businesses.
Creditors Voluntary Liquidation (CVL)
If it is necessary to wind up the business, CVL provides a fair and equitable distribution of the business’s assets among its creditors. The order of distribution amongst creditors is set out by law. This form of liquidation is made voluntarily by the shareholders and takes a minimum of approximately one (1) week to effect the appointment.
Receivership
A receiver is usually appointed by a secured creditor (often a bank) or the court. A receiver can be appointed with or without the director’s consent and can either continue to trade on the business or realise some, or all, of the business’s assets to repay the secured creditor.
When business gets personal
The downside of an insolvent business is the effect is can have on you personally. You, and any other stakeholders, may be called upon to meet the liabilities of the business personally. Common examples include payment of secured debts and rent when the business has been operated from leased premises.
If you find yourself in this situation, you might need to consider personal insolvency options as well.
Personal insolvency - act quickly
Invested in a failed business venture? Constantly juggling credit card balances? Have a mountain of outstanding bills and debts? Today personal insolvency is an undeniable issue. Finding yourself in financial difficulties can place significant pressure on your health and relationships. Heed the warning signs and take the required steps to regain control as early as possible.
A specialist CPA can help you through these tough, emotional times and advise you on how to, where possible, restructure your finances and consolidate your debts. If you do find yourself facing personal insolvency, you have options, including:
Voluntary Bankruptcy
A trustee is appointed to investigate and administer the affairs of the bankrupt estate, realise assets and pay dividends. The bankrupt’s divisible property rests with the trustee. Voluntary bankruptcy provides relief from the burden of debt to enable the bankrupt’s ability to earn income, obtain future credit and travel overseas.
Part X Arrangement
The individual and creditors determine how the individual’s affairs should be administered outside of the rigid code of bankruptcy. This is seen as an alternative to bankruptcy for the insolvent individuals who are able to reach agreement with their creditors regarding the settlement of their debts.
Part IX Arrangements
Also known as ‘debt agreements’, these arrangements are only available to individuals with a debt under a certain threshold, approximately $65,000. The individual is required to make a formal proposal to their creditors, such as, payment of less than the full amount, a moratorium on payment, or period payments of income. The proposal must be accepted via a ‘special resolution’ passed by at least seventy five percent (75%) in value and a majority in number of creditors (i.e. >50%).
Why use a CPA specialist?
As experts this area, a CPA who specialises in insolvency and reconstruction will critically review your business and advice on the most appropriate solutions available to you.
CPAs are leaders in business, finance and accounting advice. The right to use the CPA designation is only given to degree-qualified professionals who have undertaken rigorous and comprehensive postgraduate study, the CPA Program.
In addition, CPAs are required to constantly enhance their knowledge and undergo ongoing professional development. This is achieved by undertaking structured professional development programs, including attendance at seminars, workshops, lectures and discussion groups.
CPAs are also bound by a strict Code of Professional Conduct and subject to regular quality assurance audits administered by CPA Australia.
With this combination of qualification, skills and experience CPAs remain at the leading edge of their profession, so you can be assured you will receive the best advice the next time your ‘Ask your CPA’.
Your insolvency checklist
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Cash flow is decreasing
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Unpaid creditors are pressing
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Accounts are unable to be paid when due
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Your debt burden is becoming unmanageable
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Sales and profit are down
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You don’t have a plan to boost business
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Your tax bills remain unpaid
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Your unpaid bills and credit card demands are mounting up
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Your emotions are telling you something is wrong
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