Is your company insolvent? A very import question, but how do you know? What are the warning signs?
We have developed a checklist of items that either individually or in combination may indicate the existence of insolvency problems. Whilst these are alert signs for anyone dealing with a business enterprise, the real test of insolvency is an inability to pay debts as and when they fall due. The question often is whether it is reasonable to expect that these problems can be overcome through an improvement in cash flow or profitability.
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
Statutory creditors not paid on time ie. Superannuation, Sales Tax, PAYG, GST, Payroll Tax
Trade creditors outstanding past contract terms
Suppliers have stopped supply or insisted on COD terms only and opened a new account
Not complying with terms of loan facility with bank or have passed deadline to reach agreement with lender
Cheques are being dishonoured.
The holding of cheques that are drawn but not sent
Accounts are paid by several cheques issued for presentation on different dates
Accounting records in disarray. Simple financial information cannot be provided quickly
The company has a working capital deficiency. Creditors being paid in part payments and regularly (ie: round amount cheques, cheques drawn to cash, payment programs
The company’s balance sheet shows a deficiency
Evidence exists of contra deals with creditors in payment of accounts
Goods returned or sought to be returned for non- payment of account
Changes in employee status
Trading at a loss
Insurance – does it exist, is it adequate and up to date?
Is income tax being paid or adverse/deterioration of running account position
Unpaid rent to landlord or unpaid lease payments to leasing company
Slow debtor recoveries (shown by increase in debtor ageing)
Debt collection agency or legal action by creditors evident ie: issuing of Statutory demands
Exceeding overdraft limit with bank (cheques perhaps being kept back until funds become available to enable release)
Formal correspondence from statutory bodies including the ATO requiring payment or making Directors personally responsible