Business insolvency can be caused by a range of factors, including start-up costs exceeding expectations and available funds, poor investment strategies or financial management, lack of knowledge or awareness of competitors or the market, ignoring taxation liabilities or inadequate management of debtors or loans. This usually starts out slowly with the business expecting to overcome the hurdle in time but sometimes, time exacerbates the problem and if it is not addressed appropriately, you may get caught up in a winding up order or petition for Bankruptcy.
If you fail to meet your loan obligations with your bank or financial institution, they may appoint a Receiver to manage the business or sell any assets they hold liens over in order to recover their investment. The Receiver will always hold the bank’s interests ahead of your own, so it is preferable to apply for voluntary administration so that the Receiver is appointed by the directors and shareholders of the business before that happens.
Liquidation occurs when either you decide that time is not going to resolve your financial issues and apply for voluntary liquidation or when a court appoints a liquidator. There may be benefits to you as a director in avoiding bankruptcy or recovering something from the sale if you undertake voluntary liquidation before waiting for creditors or a court to force it on you. A voluntary liquidator may also assist you to turn the business around by addressing financial management issues or changing business processes. Liquidators are normally paid before any funds are paid to the creditors or directors of a business, so it is preferable to have some say in which Liquidator is appointed if that is a likely scenario in your future, especially as the law provides for payment of a Liquidator’s fees, even if those fees are spent arguing with you over the value of the payment.
If you have concerns about insolvency or have been issued with a Notice, it is important to provide us with all the relevant information so that we can advise you on the best course of action and the consequences of that action. Paul Bard Lawyers, we have considerable expertise in assisting clients to petition for or avoid bankruptcy or insolvency.