As Liquidators, when investigating the past affairs of an insolvent company, we have the power of 20/20 hindsight of decisions made in the heat of the moment, of courses of action that may not necessarily have been followed again if people had their time over. It’s a powerful and unique entitlement.
That got me thinking… what are the common indicators of insolvency that we see? What are the dots that we connect, with the benefit of hindsight, in making an assessment of why a company has failed, and what could the directors have done to avoid the situation?
These are the indicators that accountants and bookkeepers should be on the lookout for. If these indicators of distress are detected early enough, the subsequent events that lead to the ultimate demise of the company could be avoided.
What are some of the indicators of financial distress?
What I am talking about may seem innocuous at first, but when the music stops playing, they become abundantly clear as the dots that can be connected later on by people like us:
- Unpaid statutory obligations
- ATO compliance deadlines late or missed
- Dishonored direct debit payments / bounced cheques
- Rounded payments to suppliers and/or ATO
- Overdraft exceeded or regularly at its limit
- Credit shopping
- Supply ceased or COD terms only
- Record keeping accuracy falling by the wayside
- Decision makers distracted by putting out fires and not running the business
For those in the bookkeeping profession, you are especially close to the detail and sources of financial distress. As a result, you are ‘in the trenches’ with the business owners, experiencing these issues in ‘real time’ – and you have an opportunity to bring some objectivity and independence to the situation and the authority to suggest that the client speak with their taxation accountant or insolvency people like us.
Remember, the earlier people seek advice, the better their chances are of getting back on their feet.
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the team and looks after the operations of the practice.
If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to firstname.lastname@example.org.