From family operations to national firms, COVID-19 has made things tough for Australian businesses. Thousands have been forced to reduce their business hours, cut down on staff or shut down completely.
As the global pandemic causes revenues to fall despite the unstoppable march of bills and expenses, one word becomes more prominent for businesses that work hard to avoid it – insolvency.
Insolvency is defined as an inability to pay all debts as and when they fall due. Businesses that become insolvent typically go into voluntary administration or company liquidation to be salvaged or dissolved.
If your business faces insolvency and coronavirus company liquidation has become a growing possibility, there are a number of things you can do that could help stem the tide and sustain your company’s existence.
Get professional assistance
Though you may be confident in your accounting, bookkeeping and business management skills, insolvency is not easy and will inevitably require a registered professional who is qualified to deal with the situation. Fortunately, due to previous cases of insolvency the Australian Courts helped to develop a list of insolvency indicators to help clarify a business’ financial situation and prevent insolvent trading.
Insolvency professionals will be able to cast an expert’s eye over your situation and provide support and solutions you may not have considered. There are many moving parts when it comes to insolvency which can add greater stress, including dealing with ASIC and appointing an accredited liquidator should the need arise.
Business impacts as a result of COVID-19 as at July 2020, according to the Australian Bureau of Statistics.
Having a firm grasp on your business’ cash flow is sometimes the difference between financial security and insolvency. Managing cash inflow can be challenging but there are a few key actions you can take to increase the amount and likelihood of money coming into your business:
- Pay creditors on time to avoid increasing the overall debts amount;
- Distribute invoices promptly and don’t be afraid to follow up regularly;
- Identify and minimise unnecessary expenses;
- Avoid, whenever possible, establishing new or increased debts with banks and other creditors;
- Pursue opportunities to negotiate credit limits;
- Set yourself a trading limit to avoid overtrading; and
- Seek professional cash flow and financial management support.
Just as you introduce good practices that increase the inflow of money, you will need to review how money is leaving your business. It is a good idea to update your list of expenses in order to pinpoint which are essential and which can be prioritised for reduction. Be sure to consider the long-term – some expenses will appear as though they are affecting your business’ financial stability now, but may inevitably help you to regain a solvent position.
Negotiate with creditors
Depending on your relationship with your creditors, it is worth discussing your debts and the realistic timelines required to pay them. By communicating with your creditors, you can learn more about their expectations and how they can be managed. Once everyone is on the same page you will have greater freedom to concentrate on making money for your businesses instead of running around in a panic to satisfy creditor demands.
Plan for the terms of a Deed of Company Arrangement
A Deed of Company Arrangement, or a DOCA, is a formal agreement between a company and its creditors to satisfy company debts. It sets out terms and conditions, the extent and nature of obligations, warranties and indemnities, and the relationships between those who are a party to it. A DOCA’s purpose is to maximise a company’s chances to continue existing, whether that be in whole or in one aspect of its business.
If the coronavirus caused insolvency and future company liquidation, you may wish to enter into a DOCA with creditors. If you follow this path it is important to understand the extent of your debt, what your creditors want and when, and what you need to stay in business.
Review business finance information systems
Before coronavirus forces your business into company liquidation, it is vital to be up to date with all financial records and business transactions. By closely monitoring this information will help you to make updates as needed and to pay creditors on time, preventing late or delayed payments. Be sure to check that you keep up-to-date balance sheets, debt payment records and that all invoices are paid, received and recorded.
Reduce future borrowing
If you believe that your company is insolvent it is necessary to stop borrowing any further, unless there is no other option available. It will be easier to deal with current debt when there is no new debt piling on top.
Research Government support programs and legislation changes
Depending on the size of your business and the nature and scale of your operation, you may be eligible for a number of support programs that were introduced to help keep as many businesses as possible solvent in order to keep the economy running.
These include JobKeeper Payment for employers, employees and sole traders, relief for commercial tenants, boosting cash flow for employers and increasing the Instant Asset Write-Off.
The Australian Government also introduced temporary legislative changes to the Corporations Act 2001 that would extend debt thresholds and increase the protections from insolvent trading, to name a few.
Facing insolvency or coronavirus company liquidation? Contact Insolvency Advisory Accountants today
Seeking professional support is important but it is important to ensure that support comes from an experienced, efficient and affordable source; a source that will help minimise your stress but maximise the outcome. This is where Insolvency Advisory Accountants comes in. With decades of experience and a free initial consultation, you can rely on Insolvency Advisory Accountants to take on all the red tape on your behalf and find the best solution for your business.
Insolvency Advisory Accountants has been assisting financially struggling individuals and companies for many years, and understands the strains of coronavirus combined with the continuous pressure of business expenses has seen many companies struggle to meet financial commitments.
If your business is insolvent due to the coronavirus and faces company liquidation, get the support and solutions you need after a free consultation with Insolvency Advisory Accountants.