31 December marks the end of the insolvent trading moratorium, temporary increase in the statutory demand threshold, the first tranche of JobKeeper 2.0 and, for some states, the commercial eviction moratorium.
With only 50 days to go, business recovery and insolvency firm Jirsch Sutherland is urging businesses to carry out a health check in preparation for these key deadlines.
“It’s vital that businesses don’t ignore the warning signs of insolvency — otherwise, they could miss the window to take corrective action,” Bradd Morelli, Jirsch Sutherland’s national managing partner, said.
“Not only that, but directors could also retrospectively be held personally liable for insolvent trading — from when the temporary COVID-19 safe harbour changes to the Corporations Act came into play on March 25 this year.
“It’s crucial that business owners and directors understand that while it might not be their fault that their business is in trouble, it is their responsibility.”
The professional body for insolvency practitioners, the Australian Restructuring Insolvency & Turnaround Association (ARITA), stressed to its members last month that a company director who chooses to trade on past the 31 December deadline has no retrospective protection.
That is, directors trading on an insolvent business beyond 31 December 2020 will be exposed to the insolvent trading provisions throughout any period the company was insolvent — including the March–December 2020 period — should the company later end up in liquidation.
ARITA noted at the time that directors will only protected under these provisions if they appoint an external administrator to the company before the moratorium’s expiry on 31 December 2020.
As such, ASIC has encouraged directors to seek advice early from a suitably qualified and independent adviser about their company’s financial affairs and the options available to manage the disruption caused by COVID-19.
“Early intervention could mean the difference between turning a business around or going into liquidation,” Mr Morelli said.
“By recognising the signs your business is in trouble and acting on them early, you could give your business the best chance of survival or to wind it up with minimal losses and achieve the best possible outcome.”
According to Jirsch Sutherland, business owners should pay attention to the following 12 warning signs, which could suggest their business may be heading towards insolvency.
- Poor or no cash flow
- Can’t pay your bills
- Can’t pay staff wages or superannuation
- Poor quality books or records
- Net asset/(liability) position
- Losing clients
- Securing special payment arrangements with creditors
- Disputes between business owners and directors
- High staff turnover and lower competence
- Substantial bad debt write-offs
- Physical deterioration or poor appearance of your business premises
- Inability to access finance
What to do when warning signs are identified
- Act quickly (before the insolvent trading moratorium ends)
- Speak with your accountant or a business recovery/insolvency specialist
- Meet with management
- Identify the reasons for the warning signs
- Review your financial position
- Prepare a strategy to deal with the issues