Running a business isn’t always easy, and financial challenges are a natural part of the journey. But if you’re finding it increasingly difficult to stay on top of bills and commitments, it might be time to take a closer look. Recognizing the signs of insolvency early can give you the chance to explore solutions and regain control. Here’s how to spot potential warning signs and what you can do to protect your business and future.
What Is Insolvency?
Insolvency occurs when a company can no longer meet its financial obligations as they fall due, or when its liabilities exceed its assets. Under the Corporations Act, directors have a duty to prevent their company from trading while insolvent. Ignoring insolvency can lead to serious consequences, including personal liability for company debts.
Warning Signs of Insolvency
Consistently Late Payments
Struggling to pay suppliers, employees, or the ATO on time is a red flag. If you’re regularly negotiating payment extensions, cash flow issues could be escalating.
Mounting Tax Debts
Unpaid GST, PAYG, or Superannuation liabilities can trigger Director Penalty Notices (DPNs), making directors personally liable for unpaid amounts.
Relying on Payment Plans or Short-Term Loans
If you’re continually taking out loans to cover operational costs or relying on ATO payment plans, your business may not be generating enough income to sustain itself.
Legal Action from Creditors
If you’ve received a Creditor’s Statutory Demand, Winding Up Notice, or legal threats from suppliers, it’s a sign that creditors are losing patience and taking steps to recover debts.
Inability to Secure Further Credit
Banks and lenders are often the first to recognize financial instability. If your applications for credit are being declined, it may indicate that external parties see your business as high risk.
Directors Funding the Business Personally
When directors start using personal savings, credit cards, or loans to keep the business afloat, it’s often a last resort and a major sign of insolvency.
What to Do If Your Business Shows Signs of Insolvency
Seek Professional Advice Immediately
Speaking to an insolvency expert can help you understand your options before things spiral out of control. Early intervention is key to achieving the best possible outcome.
Assess Viability
Determine whether the business is still viable. If there’s a path to recovery, restructuring options like Small Business Restructuring (SBR) or Voluntary Administration may help.
Consider a Small Business Restructure (SBR)
If your business qualifies, SBR allows you to restructure debts while continuing to trade. This can provide breathing room to regain control.
Understand Liquidation Options
If the business is no longer viable, Creditors’ Voluntary Liquidation (CVL) may be the best way to wind up the company and avoid further liabilities.
Take Action Before It’s Too Late
Ignoring the problem won’t make it go away. The earlier you act, the more options you have to protect yourself and minimize damage.
How Resolv Can Help
At Resolv, we specialize in guiding company directors through insolvency challenges with expert advice and practical solutions. Whether you need help restructuring your business, negotiating with creditors, or understanding liquidation, we’re here to help.
If you’re concerned about your business’s financial health, don’t wait until it’s too late. Contact us today for a confidential discussion about your options.