Starting back in August we wrote a three part article on the decision of ASIC v Plymin. That decision was notable as the Judge listed 14 Indicators of Insolvency that he used to determine whether the company was insolvent and whether the directors should have suspected so. Our first three articles on the topic listed those indicators, what they were and what they meant to insolvency practitioners. We followed that series up in April starting a four part series about the indicators. In that series we stated that the indicators could essentially be grouped into three groups:. Those based on financial statements — indicators related to the paperwork and the information available from that paperwork. Financial statements should provide sufficient information for business owners to determine the likelihood of insolvency, but in many instances financials are either not produced or the results are ignored. Insolvency is an inability to pay debts when they are due, so factors that indicate the availability of cash to do so, or the lack of it, become important. Insolvency must be distinguished from a short-term cash flow problem, so these indicators look at factors affecting cash flow, as well as the availability of cash at any one moment in time. Those based on relationships with creditors etc — indicators related to dealings with creditors and what signs should be noticed from these dealings. Regardless of the business structure, a lot of business is done by people dealing with people and the relationship between the parties will dictate how business is conducted. Strained relationships often lead to or come from a strained business. Business owners can get an indication of the health of their business from the health of their relationships with the people they do business with. Some of the indicators were so closely related that we could combine them and in we produced a revised list of them as follows:. Financial Statement Indicators Continuing losses and working capital A lack of timely and accurate financial information. Cash Flow Indicators An inability to raise equity or loan capital Issuing post-dated cheques or having cheques dishonored Payments in rounded sums and for a minimum amount Overdue Commonwealth and State taxes. Creditor Relationship Indicators Poor Relationship with Bank Suppliers demanding COD trading, or payments before supply Creditors issuing demands or proceedings. I do not intend to reproduce that paper here. They can be accessed through the Insolvency Articles archive on our website. These indicators became relevant last month as I was preparing an affidavit for the recovery of a preferential payment, and that affidavit included detail of the solvency of the company or in this case the lack of it. The company was wound indicators in Octobersix years after the Plymin case and the publication of the list trading indicators. But still this company displayed nine of the 14 indicators:. While one isolated case may not be significant, it is surprising the number of directors that we speak to that only have come to the realisation that their company is insolvent, or made the decision to discuss it, well after a number of these indicators would have strongly suggested the company was insolvent for some time. There are two obvious possibilities. One is that the directors are totally unaware of the position of their company and have no idea of what may indicate insolvency. Undoubtedly there are a few that fall into that category, but would trading the minority. The other is that, albeit they realise that there may be a problem, they ignore the indicators. Insolvent believe or hope that issues will resolve themselves before defeat has to be admitted. Human nature what it is, people do not like to publically admit defeat. Unfortunately, this usually means that by the time that help is sought it is often too late. In a few cases, directors see these indicators and start to take remedial action. Even if they cannot save the company, they still may be able to avail themselves of protection from an insolvent trading liability — as in the case of The Stake Man see The Stake Man gets off in this e-Update. The indicators should be of great trading to business owners. While not conclusive, these indicators should start business owners asking questions and making enquiries. On the other hand, the business owner should have some comfort if all of these indicators are positive, while realising that they will not give any guarantees of success and solvency. Since June the ATO has had the power to collect outstanding PAYG tax and from 30 June ; outstanding superannuation. Making directors liable for a penalty in the same amount as the unpaid tax and superannuation. Official liquidation is a process of indicators Court ordering the winding up of a company's affairs and the appointment of a liquidator in order to provide for a dismantling of a company's affairs and a fair distribution to creditors. Voluntary Administration is designed to assist companies to either come to a formal arrangement with their creditors to pay their debts, or are insolvent and inexpensively placed into liquidation. The Personal Property Securities Act PPSA came into operation on 30 January and replaced a number of provisions in the Corporations Act dealing with the registration and exercising of securities over assets. The operations of the PPSA are significant in the event of the appointment of an external administrator or indicators. Part X Part 10 is a part of the Bankruptcy Act that allows a debtor to enter into an arrangement with their creditors without being made bankrupt. The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on information contained herein. No warranty express or implied is given in respect of information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this website. Our Rates Our Solvency Services Our Forensic Services Our Team Careers Complaints or Concerns Useful Links Glossary. Not-So-Obvious Indicators of Insolvency. On 1 March In that series we stated that the indicators could essentially be grouped into three groups: Those based on cash flow — indicators related to the availability of money; and Insolvency is an inability to pay debts when they are due, so factors that indicate the availability of cash to do so, or the lack of it, become important. Some of the indicators were so closely related that we could combine them and in we produced a revised list of them as follows: Financial Statement Indicators Continuing losses and working capital A lack of timely and accurate financial information Cash Flow Indicators An inability to raise equity or loan capital Issuing post-dated cheques or having cheques dishonored Payments in rounded sums and for a minimum amount Overdue Commonwealth and State taxes Creditor Relationship Indicators Poor Relationship with Bank Suppliers demanding COD trading, or payments before supply Creditors issuing demands or proceedings I do not intend to reproduce that insolvent here. But still this company displayed nine of the 14 indicators: Solvency is about finding a better solution than would otherwise be the case Contact us. Disclaimer The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on information contained herein. 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Top 3 Technical Analysis Indicators (Ultimate Guide)
Top 3 Technical Analysis Indicators (Ultimate Guide)
The Square of Sevens An Authoritative Method of Cartomancy with a Prefatory Note (English).
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