Whether it be due to cash flow issues, result of a down turn in industry, poor management decisions that lead to a decline in income, inability to repay bank debt, there may come a time where you need to engage an insolvency specialist.

As soon as you feel things are getting out of hand, and there is less money around for the commitments you have, then you need to take a proactive approach.

Your tax accountant may not have that level of expertise required to guide you out of your situation. If so, you need to seek help from an insolvency expert. Insolvency accountants specialise in such matters, e.g. provide you with an analytical approach to lack of sales, why debts accrue, or determine if a business plan is flawed. They have the knowledge and expertise to help put your business onto the path to success or identify the best process for you, if the inevitable was to occur, and prepare you for this.

These specialists perform a comprehensive assessment of your situation, and provide recommendations as to: business structural changes, creation of efficiencies, provide ideas as to how to free up capital, liquidity improvement, and possible refinancing suggestions.

They also recommend a pathway to voluntary administration or liquidation. Whilst it may be a worst-case scenario, this can be the light at the end of the tunnel for some individuals in the direst of situations.

Like any problem, the first step to rectification is acknowledging that there is a problem. It is about changing your mind set from: ‘yes, I will pay off my debts (by robbing Peter to pay Paul)’, to: ‘no, it is impossible to pay off my debts so what can I do to rectify this, before it gets worse’.

Seeking help before a Receiver steps in is a common-sense approach. Ignoring the warning signs, by attempting to trade out of the red is dangerous, and could possibly become illegal (e.g. a company cannot and should not trade if deemed insolvent).

The legal process of Receivership is where an external party is engaged to protect or sell off company or business assets or manage a business. They can be engaged by a creditor that is secured, such as a Bank, or the Courts, even if the company and its directors are opposed to the appointment.

The Receivers look after the Bank’s best interests over the directors and the company best interests.

Where loans are provided by a Bank, the Bank will typically ask for ‘security’. That is, the company agrees that if it defaults on repayments, then the Bank can take and sell those company assets. Therefore, the Bank is a Secured Creditor.

On the other hand, Voluntary Administration is initiated by a director who hopes to save their company or business. A Creditors Voluntary Liquidation can be set by the shareholders and directors of a company to wind up the business. The courts could also appoint a liquidator for this same purpose.

So before a receiver is engaged to look after the interests of just the secured creditor, it is important to note that Voluntary Administrators and Liquidators have responsibilities to not just the secured creditors but for other creditors as well, including the company shareholders. It may provide a better alternative for all, if identified as an option as early as possible.

The information provided is general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of a qualified advisor before you make any decision regarding any products mentioned. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly Northern Tax & Financial Services Pty Ltd employees or agents shall not be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.