Insight

Spotting early warning signs of insolvency

By:
Joseph Box,
Michael McCann
06 Jun 20222 min read
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While much of the country is now open, businesses are still navigating the impact of COVID-19 – largely without the assistance of State and Federal Government pandemic-focused support. Therefore, insolvency is an unfortunate and potential reality for many.
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The earlier you spot signs of insolvency, the more opportunities your business has to turn it around.

So what are some early warning signs?

Accounting

  • Continuing losses
  • Liquidity ratios below 1
  • Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and to make reliable forecasts

Financing

  • Poor relationship with banks, including an inability to borrow further funds
  • No access to alternative finance
  • Inability to raise further equity capital

Payments

  • Issuing of post-dated cheques
  • Dishonoured cheques
  • Payments to creditors of rounded sums which are not reconcilable to specific invoices
  • Suppliers placing the company on cash on delivery terms, or otherwise demanding special payments before resuming supply

Creditors

  • Creditors unpaid outside trading terms
  • Overdue Commonwealth and State taxes
  • Special arrangements with selected creditors
  • Solicitors’ letters, summons, judgments or warrants issued against the company

Every business scenario is unique, therefore this is just a snapshot to some of the issues you might be experiencing and that might be a sign that you could be heading into the zone of insolvency.

A forensic analysis is critical when assessing what is often incomplete financial information. This information can help determine whether an entity is solvent, or to establish the date the business became insolvent. This information is regularly drawn upon in commercial litigation matters and in applications by liquidators.

To discuss your business and assess your financial information, please get in touch.

TAGS  
Authors
  • Joseph Box
    Joseph Box Joe is able to provide an expert opinion in a range of dispute situations and has been a consultant in a range of commercial assignments. View Profile
  • Michael McCann
    Michael McCann Michael heads the Queensland Financial Advisory practice and has in excess of thirty years’ experience in advising clients, financiers, government agencies and directors of companies in restructuring matters. View Profile

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