Indicators of Insolvency

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