Sometimes, a business/company may not survive.  There are many reasons why a company can no longer pay its debts when they are due, that is the company is considered to be insolvent.  If a company trades while insolvent, the debts incurred after the company became insolvent are recoverable from directors.  Of course, it can be difficult to determine when insolvency actually occurred (liquidators 'assume' as far back as possible).

There are several alternatives to the appointment of a Liquidator or Administrator, the disadvantages of which include:

- Can be significant cost

- Trading activity stops, contracts may be cancelled, guarantees may be called up, lease is terminated

- The appointment damages relationships with suppliers and customers

- Directors can be pursued for insolvent trading and their debts owed to the company, and are still liable to the ATO for unreported Super and PAYG Withholding (Directors Penalties)

Possible alternatives are:

Develop Turnaround and Profit Improvement Strategies

This concentrates on the drivers of sales and profits.  It considers the components of profit and expenses, savings in costs, improving sales and gross profit, breakeven sales, opportunities in the market, developing new customers or revenue streams, and utilising initiatives in marketing and technology.

Negotiate Payment Plans

Go direct to creditors and negotiate an acceptable payment arrangement.  This can succeed if the problem is explained, the solutions being put in place, the offer is clear, the company financial position is disclosed, and the likely outcome if a Liquidator were to be appointed.

Obtain Finance or Capital

This is an option when the problem is well understood and that there is a solution, otherwise it may just be throwing good money after bad.  Perhaps refinance the home and lend the funds to the company, or borrow against Accounts Receivable (Factoring).  However, security should be taken at the time funds are advanced by you, and the security entered on the Personal Property Securities Register (improves your position in the event of liquidation).

Sell the Business

It may be possible to sell the business, although the price may need to be discounted to induce a buyer to contract.  However, it is likely to be more then a Liquidator may achieve, especially after deduction of their fees.  A business can be sold to a related party, and as long as the sale is at fair market value on commercial terms and the proceeds are dealt with appropriately that is not 'phoenix activity', so there should be no recovery action by the Liquidator or prosecution by ASIC.

There is no guaranteed solution, every situation is different.  The steps we work through are:

- Review the circumstances and the current position

- Consider whether the business can trade profitably in the future, and evaluate the 3 or 4 strategies to be taken to improve results

- Evaluate the risks of each alternative and whether those risks can be mitigated

- Compare the various options, outcomes, prospects of success, and costs.

If you suspect that your company is in trouble, take action early and evaluate the possible options that exist at that time.  We can help you evaluate your options, and even introduce you to experts in this area.