Indicators of Insolvency - Agribusiness
The question of insolvency is very important; how do you assess it? What are the warning signs? We have developed a checklist of items which either individually or together may indicate the existence of insolvency problems.
If you have answered YES to any of the below indicators, please contact Macks Advisory. The earlier the action is taken, the better the outcome.
Key Indicators of insolvency
Inadequate cash resources
Statutory creditors not paid on time i.e. Superannuation, PAYG, GST, Payroll tax, wine equalisation tax and income tax
Trade creditors outstanding past agreed terms
Exceeding overdraft limit with bank
Not complying with terms of loan facility with bank or have passed deadline to reach agreement with lender
Suppliers have stopped supply or insisted on COD terms only
Cheques are being dishonoured
Accounting records in disarray. Are the annual financial accounts prepared by an external accountant and are they up to date?
Legal action by creditors i.e. Issuing Statutory Demands
Creditors being paid in part payments(i.e. Round sum cheques being written out, cheques drawn to cash, etc)
Slow debtor recoveries (shown by increase in debtor ageing)
The business has a working capital deficiency
The businesses’ balance sheet shows a deficiency of assets to liabilities
Trading at a loss
Insurance may be inadequate
Unable to plant seasonal crops due to cash flow shortages
Delaying necessary repairs and maintenance due to cash flow shortages
Poor animal health & inadequate stock nutrition
Disease of stock or crops. Farm plans and adequate crop and grazing rotation thus avoiding disease and overgrazing
Environmental concerns – risk of contamination and resultant fines & remediation costs under Environmental Contamination Acts
Adversely affected by drought
Substantial sell off of core breeding herd to fund short term cash requirements
Stock agents stop dealing due to poor credit history
Loss of water rights or suspension of licences due to non payment resulting in inadequate water for needs
Additional off-farm income required to meet farm expenses and day to day costs
Operating with no or inadequate licencing