Do you know what will happen to your business if you hit financial difficulties? Even if everything is currently smooth sailing, it is a good idea to have an understanding of what happens when things do go wrong.
There were 2,299 companies that entered liquidation in the September quarter of 2016, according to the Australian Securities and Investments Commission (ASIC). Clearly, these difficulties are a reality for many – so what can you do when they strike? Here are three ways to address financial issues head-on:
Turnaround and restructuring
This is a solution to financial woes that involves a proactive approach. Professionals can assess your business, and work out its strengths and weaknesses before putting a plan into place to get you back on track.
From an organisational review to engaging with your stakeholders to ensure their continued support, turnaround and restructuring is a way of ensuring ongoing survival without to avoid a formal insolvency appointment like voluntary administration or liquidation.
With this process, you (the company director) appoint an administrator to handle your business' affairs when it is unable to pay off its debts. Under this insolvency process, your company has breathing space while under the control of the administrator who will engage with your creditors to try and make sure your company continues to exist.
Administration lasts approximately five weeks and the common avenues to exit it are liquidation or entering into a Deed of Company Arrangement. A Deed of Company Arrangement is the avenue for the continued survival of your business, or perhaps just to avoid liquidation. A proposal for a Deed of Company Arrangement is a settlement offer to provide a return to the people your company owes that is better than if it were to go into liquidation. It can protect you against further liability, secure the future of your business, and avoid liquidation..
In cases where your business is not viable, or there is no prospect of proposing a viable Deed of Company Arrangement and your company debts remain unpaid, a liquidator may be appointed. This can be involuntary, by creditors, or voluntary where triggered by the shareholders of your company.
Liquidation will result in the closure of your business and employees will be terminated. The Liquidator will collect and realise your assets, investigate the company's affairs and whether any recovery claims exist (generally for preferences, uncommercial transactions, insolvent trading and breaches of directors' duties) provide a report to ASIC on your conduct as director and distribute any surplus funds to creditors. If you have had a number of companies enter liquidation, you could be barred by ASIC from directing other companies for several years. Liquidation is often considered a last resort when your business hits significant financial difficulties.
It always pays to be proactive and prepared.
Ideally, you will continue running your business as usual, and be able to implement strategies that prevent liquidation from occurring, or perhaps even avoid debts piling up altogether. That is where the pre-insolvency specialists at Cactus Consulting can prove invaluable. Even if your finances are in okay shape at the moment, it always pays to be proactive and prepared. If you want to find out more about your financial options, get in touch with the team.